Voluntary overtime is common in the Manufacturing sector. A new case may mean that voluntary overtime pay must be included when calculating holiday pay.

Holiday pay is a current hot topic for employers and we reported on the EAT’s decision in Bear Scotland in the first edition of Industry Insight. The Bear Scotland decision concerned non-guaranteed overtime, which an employer is not obliged to offer, but which an employee is required to work if it is offered. Questions relating to voluntary overtime were left unanswered by the EAT in that case.

In another instalment in the holiday pay saga, the Northern Ireland Court of Appeal considered last month whether payments in respect of purely voluntary overtime had to be included when calculating an employee’s holiday pay. Voluntary overtime is overtime which the employer is not obliged to offer and which the employee is not obliged to perform. In Patterson v Castlereagh, the first instance Industrial Tribunal had interpreted the EAT’s decision in Bear Scotland as establishing a principle that voluntary overtime payments should be excluded when calculating holiday pay.  In fact, the issue of voluntary overtime was not considered in Bear Scotland.
Unsurprisingly, the Northern Ireland Court of Appeal concluded in Patterson that the Industrial Tribunal had wrongly interpreted the EAT’s decision and held that there is no reason in principle why voluntary overtime should be excluded from the calculation of holiday pay – the question for employers and tribunals will be whether such payments can be said to form part of an employee’s “normal remuneration”. The Court of Appeal did not provide guidance for employers as to the tests to be applied when considering holiday pay and indicated that this would be a question of fact for a tribunal to determine in each individual case.
The judgment is unsurprising, however employers still do not have clarity on the circumstances in which such payments should be included, or how such payments should be calculated. While decisions of the Northern Ireland Court of Appeal are not binding on the courts and tribunals of England and Wales, they can be persuasive. This means that the decision has potential implications for employers outside of Northern Ireland, who can expect claimants to rely on the Patterson judgment to argue that payments in respect of voluntary overtime should be reflected in their holiday pay.

Backstop on historic holiday pay claims now in force

In more positive news for employers, the regulations limiting workers’ ability to bring retrospective holiday pay claims took practical effect this week. The Deduction from Wages (Limitation) Regulations 2014 came into force in January this year, but only apply to claims presented on or after 1 July 2015. The regulations effectively cap the sums that can be claimed in respect of retrospective holiday pay at a maximum of two years; meaning that workers will no longer be able to claim back-pay going back many years. While there may still be cases brought before the regulations took effect which are progressing through ACAS early conciliation and making their way to employers, employers can take comfort knowing that the regulations now limit their exposure in respect of future claims.