Chris Randall: Voluntary overtime included in holiday pay – what this means

The Employment Appeal Tribunal has handed down its decision in the long awaited case of Dudley Metropolitan Borough Council v Mr G Willetts and Others (UKEAT/0334/16/JOJ).

The EAT has held that entirely voluntary overtime falls within the scope of Article 7 of the Working Time Directive, and therefore within the concept of “normal remuneration” for the purposes of calculating the holiday pay due by regulation 13 of the Working Time Regulations.

The claims were brought by 56 council workers who are employed in various positions to maintain council properties. The claimants are contracted to work for 37 hours a week.

In addition to normal working hours, the claimants also perform additional duties on a voluntary basis, including, among other things, voluntary overtime. The voluntary overtime was not reflected in the claimants’ holiday pay.

The claimants successfully argued before the Employment Tribunal that that pay received for the voluntary overtime with sufficient regularity, should be taken into consideration for the calculation of holiday pay to ensure that employees are not financially disadvantaged by taking leave.

The EAT found in favour of the claimants. By the Working Time Directive, there is no distinction between contractually required work and tasks that are performed voluntarily under other arrangements, because levels of normal remuneration have to be maintained when calculating holiday pay in relation to the guaranteed four weeks of annual leave provided by the Working Time Directive.

The EAT also upheld that where voluntary overtime forms part of normal pay, it should be included in holiday pay calculations so that there is no financial disadvantage that may deter employees from taking leave. The EAT stressed that the pattern of work must continue for a sufficient period of time on a recurring basis to justify the description “normal”.

The President of the Employment Appeal Tribunal, Simler J, said: “It seems to me that once the claimants commenced 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.

“The payments made were all directly linked to tasks they were required to perform under their contracts of employment and, once those shifts or standby periods began, they were in no different position from an employee who is required by his contract to work overtime or be on standby or attend callouts.”

What does this mean for employers?

This is an important decision because it is the first binding decision on this point of law. Many Tribunal claims have been stayed, pending this decision.

Employers should reconsider how they calculate holiday pay, and more importantly, what pay is taken into consideration, to ensure they stay on the right side of the law. This is particularly important in light of the recent decision of the Supreme Court abolishing Employment Tribunal fees.

Potential claimants have historically been deterred from raising holiday pay claims because of the relatively low amounts of money claimed compared with the Tribunal fees of £390. This could see an increase in the number of holiday pay claims.

Wider implications

This decision is also important because of the potential wider implications of the gig economy. If the Respondent had succeeded in its case, it would have meant that workers on zero hours contracts would not have been entitled to paid annual leave because they have no normal remuneration.