This week, in the latest development on holiday pay, the Court of Appeal gave its judgment in East of England Ambulance Service NHS Trust v Flowers and confirmed that both non-guaranteed and voluntary overtime are in scope for inclusion in holiday pay calculations in respect of the 4 weeks’ Working Time Directive holiday entitlement, provided that the overtime is broadly regular and predictable. There is no requirement that the overtime is compulsory under the contract of employment.
In giving its judgment, the Court of Appeal gave extremely short shrift to the ECJ’s comments in Hein v Albert Holzkamm GmbH & Co which had appeared to indicate that payments in respect of genuinely voluntary overtime might be excluded from holiday pay calculations. It also expressly upheld the EAT’s judgment in Dudley MBC v Willetts.
The Court of Appeal’s robust stance here is helpful in clarifying the law on this issue, and while perhaps not welcome news for employers, should at least now assist in clearly identifying which overtime payments need to be considered when calculating holiday pay.
This case was brought by ambulance service employees of the NHS Trust who alleged that their holiday pay should take account of overtime in 2 categories: (1) non-guaranteed overtime; and (2) voluntary overtime.
Non-guaranteed overtime would arise when an employee was involved in carrying out a task which had to be completed after the end of the relevant shift, for example caring for patients to whom an ambulance had been sent, and seeing that job through to completion, even if it required work beyond the end of the relevant shift.
Voluntary overtime was available in respect of additional shifts, but there was no requirement or expectation to undertake it.
Terms as to holiday pay were included in a collective agreement known as ‘Agenda for Change’. This provided that, “pay during annual leave will include regularly paid supplements, including payment for work outside normal hours…Pay is calculated on the basis on what the individual would have received if he or she had been at work”. The EAT held that, in these circumstances, the employees had a contractual entitlement to have both non-guaranteed and voluntary overtime taken into account in calculating holiday pay.
The Court of Appeal agreed with this contractual entitlement but notwithstanding this, and in recognition of the importance of the issue generally, also went on to consider whether entitlement to have these payments taken into account also arose under the Working Time Directive in any event.
Here, reviewing each of the key ECJ cases on this issue, the Court of Appeal found that the case law, “establishes clearly that the question in each case is whether the pattern of work is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. There is no separate requirement that the hours of work are compulsory under the contract“.
So far, so good. However, in 2018, one ECJ case, Hein v Albert Holzkamm GmbH & Co, had cast some doubt on the position in relation to genuinely voluntary overtime. Helpfully, the Court of Appeal went on to consider the impact of this case.
In Hein , the ECJ made a number of comments which appeared to closely follow the previous line of cases, saying that a principle had been established that “remuneration must be maintained….workers must receive their normal remuneration for the period of rest“, and noting that in the particular case at hand, “remuneration paid for overtime worked by the workers is fully taken into account when calculating remuneration for annual leave“.
However, the ECJ then went on to throw a spanner in the works by further pronouncing that “given its exceptional and unforeseeable nature, remuneration received for overtime does not, in principle, form part of the normal remuneration that the worker may claim in respect of [their] paid annual leave….”. It then said, however, that “when the obligations arising from the employment contract require the worker to work overtime on a broadly regular and predictable basis, and the corresponding pay constitutes a significant element of the total remuneration that the worker receives for his professional activity, the pay received for that overtime work should be included in the normal remuneration due under the right to paid annual leave…”
These comments were spectacularly unhelpful in terms of clarifying employer’s obligations and apparently contradictory to the earlier part of the Hein judgment. Helpfully, however, the Court of Appeal has now left us in no doubt as to its views on this aspect of the Hein judgment. Its comments (which perhaps point to a new post-Brexit approach to ECJ judgments?) include the observation that the words were, “so surprising that ….it asked counsel to check the text of the judgment in German to see whether anything [had] been lost in translation” and that while the ECJ, “is notorious for making pronouncements resembling those of the oracle at Delphi…..even by their oracular standard [the text] is hard to understand….to say as a sweeping general proposition, that the nature of overtime is exceptional and unforeseeable would be nonsense….it is one thing to be oracular: it is another to be self-contradictory“.
The Court of Appeal had no problem, therefore, in finding that the distinction which needs to be made between overtime payments which need to be included in holiday pay calculations, and those which do not, is whether the payments are exceptional and unforeseeable (not included) or broadly regular and predictable (included).
Whilst this still leaves employers with some judgment-making to do in terms of assessing the nature of overtime payments, this assessment can now at least be founded on a more solid understanding of when overtime payments are likely to count, and when not.
Round-up of holiday pay elements
So, where does this case leave employers now in determining which payments need to be included in holiday pay? Taking it alongside all the previous case law, the position can be summarised as follows:
Pay to be included
Pay that is normally received including:
- Contractual results-based commission ordinarily received;
- Guaranteed, compulsory overtime payments;
- Non-guaranteed and voluntary overtime payments provided the overtime worked is broadly regular and predictable;
- Regular out-of-hours standby payments and call-out payments;
- Payments intrinsically linked to the performance of the worker’s tasks under the contract of employment, including allowances for performing a certain task, or at certain times, or in certain conditions eg productivity bonuses;
- Payments which relate to professional and personal status.
Pay to be excluded
- Expenses which reimburse workers for actual costs incurred eg travel expenses.
Grey areas (not so far considered by the courts)
- Annual bonuses;
- Tips and service charges.
It will not be long before we also see further developments in relation to holiday pay, this time relating to the reference period for carrying out the calculation. In April 2020, for workers with variable remuneration, the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will increase the reference period for calculating an average week’s pay from 12 weeks to 52 weeks. No doubt, this will require employers to review their holiday pay calculations again.