The Court of Appeal has held that the first four weeks’ holiday pay should take into account sums earned for voluntary overtime, which is sufficiently regular and settled for the overtime payments to amount to 'normal' remuneration.

Legal background

The Working Time Directive (WTD) grants workers four weeks’ statutory holiday entitlement per year. In 2014, the EAT held that non-guaranteed compulsory overtime should be included in the calculation of the first four week’s holiday pay (Bear Scotland Ltd and ors -v- Fulton and ors [2014] UKEAT 0047_13_0411). In 2017, the EAT went on to hold that payments received for regular voluntary overtime should be included in the calculation of holiday pay for the first four weeks’ holiday pay (Dudley Metropolitan Borough Council -v- Willetts and others [2017] UKEAT 0334_16_3107; see our report).

However, the European Court of Justice (ECJ) subsequently made comments, in a case concerning the correct calculation of holiday pay during periods of short-time work, which cast a shadow of doubt on the correctness of the Willetts decision (Hein -v- Albert Holzkamm GmbH (case C-385/17)).

Factual background

A group claim was brought on behalf of NHS employees working in the ambulance service, claiming that they had suffered unlawful deductions from wages because their employer had failed to take account of non-guaranteed overtime and voluntary overtime when calculating their holiday pay. The workers relied on the WTD and, in the alternative, argued that they had a contractual right to receive holiday pay including such overtime under NHS terms and conditions. The employer conceded that the WTD required the non-guaranteed overtime to be included in holiday pay and the case therefore focused on whether the voluntary overtime should be included in their holiday pay. The EAT held, following the EAT’s decision in Willetts, that voluntary overtime that is sufficiently regular and settled should be included in holiday pay. Further, the EAT held that a clause in the relevant NHS terms, which stipulates that holiday pay is calculated on the basis of what an employee would have received had they been at work, gave the employees a contractual entitlement to have both non-guaranteed and voluntary overtime included in their holiday pay.

The employer appealed, partly on the basis that, given the ECJ’s later decision in Hein, the EAT in Willetts had wrongly interpreted EU case law relating to the calculation of holiday pay.

Court of Appeal held

The Court of Appeal dismissed the employer’s appeal. The Court of Appeal firstly upheld the EAT’s decision that a clause in the relevant NHS terms, which stipulates that holiday pay is calculated on the basis of what an employee would have received had they been at work, gave the employees a contractual entitlement to have both non-guaranteed and voluntary overtime included in their holiday pay.

The Court then went on to consider whether the EAT decision in Willetts had been correctly decided and held that it had. The Court held that the ECJ in Hein had merely intended to draw a distinction between exceptional and unforeseeable overtime payments on the one hand (not included in holiday pay) and broadly regular and predictable ones on the other (included in holiday pay). The EAT decision in Willetts, which had been relied on by the EAT in this case, had therefore been correctly decided. The first four weeks’ holiday pay should take into account sums earned for voluntary overtime, which is sufficiently regular and settled for the overtime payments to amount to 'normal' remuneration.