In Dudley Metropolitan Borough Council v Willetts, the Employment Appeal Tribunal (“EAT”) has provided some further clarity on the extent to which payments associated with voluntary overtime should be taken into account when calculating holiday pay.
The case involved 56 council employees who all had contractual normal working hours. In addition to their normal working hours, the employees performed additional duties on a voluntary basis, which their contracts of employment did not require them to carry out.
The employees contended that their holiday pay should reflect the overtime pay, call-out payments and mileage and standby allowances associated with these additional voluntary duties. The tribunal ruled in favour of the employees and the Council appealed to the EAT.
The question for the EAT was whether voluntary overtime payments fell within the definition of ‘normal remuneration’ in Article 7 of the European Working Time Directive. If they did, then they must be included in the calculation of holiday pay.
The EAT referred to the European and UK court precedents and said that all payments intrinsically linked to the performance of the tasks which an employee is required to carry out under their contract of employment will amount to normal remuneration. However, the absence of such an intrinsic link does not, according to the EAT, automatically exclude a payment from counting as normal remuneration. The EAT said that “in a case where the pattern of work, though voluntary, extends for a sufficient period of time on a regular and/or recurring basis to justify the description “normal”….. it will be for the fact-finding tribunal to determine whether it is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration”.
Applying those principles to the facts of the present case, the EAT upheld the tribunal’s finding that voluntary overtime payments were in the case of some of the employees sufficiently regular and settled to amount to normal remuneration. This the EAT found was sufficient in itself without also needing to satisfy the ‘intrinsic link’ test. However, it noted if it was wrong about the ‘intrinsic link’ point and this was required in all cases in order for pay to be normal remuneration, then the voluntary overtime payments in this case would have satisfied this requirement. The specific agreement or arrangement for voluntary overtime would not exist in the absence of a contract of employment. Once the employees started working a shift of voluntary overtime or a period of standby duty or callout, they were performing tasks required of them under their contracts of employment, even if there was also a separate agreement or arrangement.
This case makes clear that the voluntary nature of overtime and other similar duties does not exclude the payments associated with them from being included in the calculation of holiday pay. However, it still leaves open the question of whether voluntary overtime payments in each particular case are in fact normal remuneration to be decided by the tribunal as a question of fact. The challenge for employers remains therefore deciding when voluntary overtime pay should be included in holiday pay. Accordingly employers should review payments made to employees for voluntary overtime and other similar duties in order to consider whether these need to be included in the calculation of holiday pay.
It is important to note that this judgment and the ECJ principles referred to above only apply to the basic four week annual leave entitlement under Regulation 13 of the Working Time Regulations (“WTR”), not the additional 1.6 weeks under Regulation 13A of the WTR.