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Holiday pay: Voluntary overtime may count towards holiday pay

By: Amanda Steadman

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
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The Northern Ireland Court of Appeal (NICA) has held that there is no reason why voluntary overtime should not be included in statutory holiday pay. It will be a question of fact for each Tribunal to determine whether or not that voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion. (Patterson v Castlereagh Borough Council)

Background

Under Article 7 of the Working Time Directive (WTD), member states must ensure that workers have the right to at least 4 weeks' paid annual leave. The WTD is implemented into UK law by the Working Time Regulations (WTR) and into Northern Irish law by the Working Time Regulations (Northern Ireland) 1998 (WTR-NI). The WTR and the WTR-NI each provide workers with 5.6 weeks' annual leave, of which 4 weeks' is derived from the WTD.

Workers are entitled to be paid at the rate of a "week's pay" for each week of leave, calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996 or Articles 17 to 20 of the Employment Rights (Northern Ireland) Order 1996. For workers with normal working hours, a "week's pay" in both of these pieces of legislation includes basic salary, but excludes payments for commission and overtime. Although the WTD does not specify how statutory holiday pay should be calculated, a growing body of European caselaw suggests that the UK's approach to calculating annual leave is insufficient. For example:

  • In Williams and others v British Airways plc (2011), the ECJ ruled that: "workers must receive their normal remuneration for that period of rest". The ECJ expanded on the concept of "normal remuneration" to hold that a worker on holiday is entitled not only to basic salary, but also to any aspect of pay which is: "linked intrinsically to the performance of the tasks which he is required to carry out under his contract of employment." This opened the door for workers with normal working hours to seek to include other components of pay in their holiday pay.
  • In Lock v British Gas (2014), the ECJ held that where a worker was paid commission calculated on the basis of the sale that he had made, that commission must also be included.

More recently, the UK courts have applied some of the principles set down by the ECJ. In the combined cases of Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood and others; and Amex Group Ltd v Law and others (Bear Scotland), the Employment Appeal Tribunal (EAT) held in November 2014 that non-guaranteed but compulsory overtime should be included in holiday pay (provided that it was "normal remuneration"). You can read our detailed report on this decision here. However, the EAT did not make any findings in relation to purely voluntary overtime, because the issue was not engaged in any of the cases in question.

Finally, in December 2014, the issue of voluntary overtime came before the Northern Irish Industrial Tribunal (Tribunal) in the case of Patterson v Castlereagh Borough Council (2014). This case concerned whether payments in respect purely voluntary overtime hours worked by Mr Patterson in his normal role should be included in the calculation of his holiday pay. The Tribunal held that payment in respect of purely voluntary overtime should not be included in calculation of holiday pay. However, the decision was appealed to the NICA on the basis that the Tribunal had appeared to misdirect itself when it applied the EAT's decision in Bear Scotland to conclude that voluntary overtime (unlike non-guaranteed overtime), should not be included in holiday pay.

Facts

Mr Patterson undertook some genuinely voluntary overtime (not guaranteed and not compulsory) carrying out his contractual tasks as an Assistant Plant Engineer. Relying on Williams, it could be said that this work was intrinsically linked to the performance of his contractual duties. However, before the Tribunal, the Council argued that this work was purely voluntary and, therefore, not "normal remuneration" but "special remuneration" and that it should not be included in his holiday pay.

Tribunal decision

The Tribunal agreed with the Council and held that payment in respect of this purely voluntary overtime should not be included in the calculation, appearing to take the approach that the effect of the EAT's decision in Bear Scotland was that Article 7 of the WTD did not require voluntary overtime to be included in the calculation of statutory holiday pay.

However, commentators suggested that this decision was wrongly decided and it was appealed to the NICA on the basis that the Tribunal had appeared to misdirect itself when it applied the EAT's decision in Bear Scotland to conclude that voluntary overtime (unlike non-guaranteed overtime), should not be included in holiday pay.

NICA decision

At the appeal hearing, the parties accepted that: "…insofar as the Tribunal found that Mr Patterson's entitlement to paid annual leave should be calculated without taking into account voluntary overtime….the Tribunal had "fallen into error" (the Concession). Consequently, the Council appeared to concede that, in principle, voluntary overtime could be included in statutory paid leave provided that it is "normal remuneration" (i.e. intrinsically linked to the contractual tasks and exhibiting the necessary degree of permanence).

In light of the Concession, NICA held that the Tribunal was wrong to conclude that voluntary overtime cannot be included in statutory holiday pay as a matter of principle. They commented that, although the Concession had been well made, it meant NICA had been deprived of any full argument on the issue and that their conclusions must be read in this light and with that degree of caution attached to them. Therefore, they did not analyse in any detail the circumstances in which voluntary overtime could, or should, be taken into account and remitted the case back to the Tribunal for determination on its particular facts.

In summary, NICA:

  • was satisfied that the employer had correctly conceded that, in principle, that there is no reason why voluntary overtime should not be included in statutory paid leave;
  • confirmed that it will be a question of fact for each Tribunal to determine whether or not the voluntary overtime is normally carried out and the remuneration is sufficiently permanent to mean it should be included; and
  • remitted the case back to the Tribunal for determination on its particular facts.

Comment

This is the first decision at appellate level in Northern Ireland and Great Britain which directly addresses the issue of voluntary overtime and the calculation of holiday pay. Where the Tribunal had previously held that purely voluntary overtime should not be included in the calculation of holiday pay, this decision means that voluntary overtime may, in principle, count towards holiday pay in Northern Ireland.

Although the decision is only binding in Northern Ireland and not the rest of the UK, NICA decisions are considered persuasive by British courts and tribunals where there are not existing binding cases on a point. Therefore, NICA's decision could well influence the outcome of future cases in England and Wales and Scotland.

Following this decision, it seems likely that the focus in relation to voluntary overtime will fall to be a consideration of the facts of each particular case and whether the manner and regularity in which the voluntary overtime is worked meets the requirements of the 'normal remuneration' test.

Patterson v Castlereagh Borough Council (2015)