An update on holiday pay and overtime

In September 2015 in front of over 100 CIPD attendees I made a bold prediction regarding the future of employment law. That prediction was, that by the time I returned the following year, we would have a judgment in relation to voluntary overtime pay and it would not be good news for employers. The crowd fell silent, all but for a few Financial Directors in attendance who shed tears into their coffee. It has taken eight months but that prediction has,  it seems, come true.  An Employment Tribunal in the recent case of White & Others v Dudley Metropolitan Borough Council, has confirmed that voluntary overtime should be included in holiday pay. 

In order to understand the judgment fully, it’s useful to understand the various types of overtime available and what they mean.

There are three different types of overtime available:

1. Guaranteed overtime –  overtime which is guaranteed by the employer and which must be worked by the employee;
2. Non-guaranteed overtime - overtime which does not have to be offered by the employer but if offered must be worked by the employee; and
3. Voluntary overtime - overtime which the employer is not obliged to provide and the employee is not obliged to work.

It’s been accepted for a while that guaranteed overtime should be paid as part of holiday pay. The confusion surrounding non-guaranteed overtime appears to have been cleared up in the 2014 case of Bear Scotland v Fulton which ruled that such payments should also be included with the calculation of holiday pay. This left us in a position where only voluntary overtime (the most common form of overtime) required tribunal clarification.

Background

The White case involved a group claim of 56 claimants who worked as tradesmen for Dudley MBC. The claimants were invited by their employer to work Saturdays (a non-working day according to their contracts of employment), however there was no requirement to accept this work. In addition the claimants also elected to go on standby every 4 weeks to deal with emergency callouts. This standby time was not a requirement by the employer, nor were the employees’ contracts of employment ever changed to reflect this new working arrangement. The arrangement remained in place for a number of years prior to the claimants filing claims with the Employment Tribunal.

The Claimants brought a claim that in addition to guaranteed and non-guaranteed overtime, voluntary overtime should also be payable as part of holiday pay.

Outcome

Dudley MBC argued that, as the work was purely voluntary it could not form part of the claimants’ contractual pay. This defence was unsuccessful. In its judgment, the Tribunal stated that as the voluntary overtime and standby payments were carried out with “sufficient regularity” it therefore became part of the claimants’ normal pay and should be reflected in their holiday pay in respect of the 20 days’ annual leave arising under the Working Time Directive.

What does this mean for you or your business?

Whilst this judgment may set alarm bells ringing, a number of mitigating points can be taken from the judgment:

1. The Tribunal was clear that the claimants’ claims were successful based on the “sufficient regularity” of the overtime/standby work carried out. What was meant by “sufficient regularity” was not clarified. However, it is unlikely that ad-hoc voluntary overtime, carried out by employees at intermittent periods throughout the year, will be classed as sufficiently regular to attract entitlement to overtime based holiday pay. This point has yet to be tested further.
2. This decision is not binding on other Tribunals; a different Employment Tribunal may well come to a different conclusion. This judgment may be appealed to the Employment Appeal Tribunal. Only if the EAT hear a case on this point will such a judgment become binding on other Tribunals. It’s unlikely however that this decision will be overturned given the clear trends in other UK and European cases on holiday pay.
3. As set out above, whilst the UK offers a generous 28 days statutory holiday leave to UK workers, this judgment only applies to the 20 days provided for under European law. There is therefore no requirement to pay employees the additional overtime monies for the remaining 8 days holiday or further contractual holiday leave.

What do you need to be doing now?

Internal assessments should be carried out to ascertain the financial liabilities to your business in relation to whether voluntary overtime may now need to be paid as part of holiday pay.  Be aware however that the rules of disclosure in Employment Tribunals mean that any written assessment produced by your business would be disclosable as part of tribunal proceedings. 

Should you start paying holiday pay to include voluntary overtime now?

The answer to this question is that it will purely be down to each business. Some employers may decide to start paying it now. Others may hold off to see if the case is appealed (it may well be) and await a binding judgment from the Employment Appeal Tribunal before committing either way. Finally, if British Gas succeeds in its Court of Appeal challenge that the Working Time Regulations should not be read purposively to give effect to the Working Time Directive it may mean that voluntary overtime does should need to be paid by private sector employers as part of holiday pay until a higher court decides otherwise or the government re-writes the Working Time Regulations. 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.