In Dudley Metropolitan Borough Council v. Willetts the Employment Appeal Tribunal (EAT) held that voluntary overtime, and other payments associated with rotas worked voluntarily, should have been included in the calculation of statutory holiday pay.
This case concerned the unlawful deductions from wages claims made by five lead claimants who carried out housing repairs for Dudley Metropolitan Borough Council (the Council). While the employees concerned received holiday pay, they argued that it should have included an amount in respect of voluntary overtime, voluntary standby allowances, and voluntary call-out payments.
The employees worked different shift patterns, with different degrees of regularity to the overtime worked. They could “drop on and off of the rotas to suit themselves whether day by day, week by week, month by month or permanently” and the additional work “was almost entirely at the whim of the employee, with no right to enforce work on the part of the employer.” However, the EAT held that the key consideration was whether the payments were paid with sufficient regularity over a sufficient period of time. The EAT specifically rejected arguments made on behalf of the Council that “normal weekly pay” should not include voluntary overtime because it was only worked once every four or five weeks. The EAT held that this was sufficient to amount to a regular pattern. Should there be any fluctuations in the amount paid in respect of these periods of overtime, the EAT held that this would be catered for by the “12 week average” rule.
The EAT Decision
This is the first occasion the EAT has heard cases relating to purely voluntary overtime. The key points from the decision are:
- Workers are entitled to “normal remuneration,” not just contractual pay, during the 20 days’ annual leave provided for under the Working Time Directive. The pay workers receive in respect of that annual leave must correspond with their “normal remuneration.”
- Determining whether a given payment qualifies as “normal remuneration” is a question of fact to be determined by a tribunal.
- The frequency and regularity of the payment will be relevant factors for the Tribunal to consider:
- Items which are not usually paid or which are exceptional will not qualify as “normal remuneration”
- Items which are usually paid and regular across time may qualify as “normal remuneration”
Backdated Claims for Voluntary Overtime?
This decision will not necessarily open the floodgates for claims for backdated holiday pay that span indefinite periods. Employees who have a break of more than three months between payments will not be able to (successfully) argue that they have suffered a series of deductions.
Given that the requirement to include voluntary overtime in holiday pay only relates to the 20 days' leave required under the Working Time Directive and not to additional leave, if there is more than a three month gap between the 20th day of leave and the first day of the new holiday leave being taken, the cycle in the series of deductions will be broken.
Further, even if the cycle is not broken, employment tribunals can only look back two years from the date of the complaint, not the entirety of their employment.
This decision is extremely important, albeit unsurprising following the recent trend in case law on the correct calculation of holiday pay. Adopting a “wait and see” approach to voluntary overtime no longer seems possible and regular voluntary overtime should now be included in holiday pay, except for in circumstances where the overtime is genuinely ad hoc.
That being said, the EAT offered little by way of further guidance on what level of regularity or frequency is required in order for a payment to qualify as “normal remuneration.” Employers may still therefore face practical difficulties in determining whether, as a matter of fact and degree, payments constitute “normal remuneration.” It seems that any regular overtime (i.e. when worked at certain times of the month or year) or frequent overtime (i.e. when worked often, for example even once every five weeks) must now be included in the first 20 days’ leave taken in each holiday year. Employers may still, however, exclude voluntary overtime from additional statutory (e.g. the further eight days) or contractual leave (in excess of the extra eight days).
Further, in light of the limitations to backdated claims for voluntary overtime set out above, if an employer starts to pay statutory holiday pay at a rate that includes regular voluntary overtime for the first four weeks of leave in each holiday year it will have the advantage of extinguishing any historical claims once a period of three months has elapsed, because there will be no series of deductions on which to base a claim.