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Legal Minds

1 June 2016 / by / in ,

The Calculation of Holiday Pay Conundrum Continues…

The contentious issue regarding the calculation of holiday pay has been sending the employment law blogosphere ablaze over the last few years and the Midlands West Employment Tribunal has just thrown another case into the mix, which will surely add another layer of complexity to the debate.

By way of background, readers will recall that every worker has the right to a minimum of four weeks paid annual leave under EU legislation and a further 1.6 weeks paid leave under UK legislation (which accounts for public holidays). The practical problems that have arisen as a result of this entitlement stem from a worker’s right to be paid at the rate of a “week’s pay” for each week of leave. For workers with normal working hours, a “week’s pay” has historically included basic salary but excluded payments for commission and overtime. However, a growing body of case law suggests that the UK’s approach to calculating annual leave in this way is insufficient.

For example, the European Court of Justice (ECJ) has ruled 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 (in the case of Williams and others v British Airways plc [2011] IRLR 948 (ECJ)). The Employment Appeal Tribunal (EAT) has also determined that commission and similar payments must also be included in the calculation of holiday pay (in British Gas Trading Ltd v Lock and another UKEAT 0189/15), along with non-guaranteed but compulsory overtime (in Bear Scotland Ltd v Fulton and others UKEATS/0047/13).

However, this case law has also thrown up a number of unanswered questions. In particular, the EAT’s decision in Bear Scotland did not address the question of whether purely voluntary overtime should also fall within the calculation for holiday pay. In the case of White & Others v Dudley Metropolitan Borough Council [2016] 1300537/2015 the Midlands West Employment Tribunal has sought to answer that question with a (fact dependent) “yes it does”.

This case was brought on behalf of 56 workers who were employed by Dudley Metropolitan Borough Council as tradesmen engaged in the repair and maintenance of the Council’s social housing. All of the employees worked a standard 37 hour contract, with some also working additional contractual overtime, additional voluntary overtime and, again on a purely voluntary basis, on a “standby” or “call out” rota for out-of-hours emergency work. The workers were paid their basic pay, plus an additional payment for all voluntary and out of hours work and call outs they undertook, as well as a mileage allowance for trips between jobs. In fact, a number of the Claimants received a further £725 every month as a result of this work and effectively relied on the overtime payments to make up their pay packets.

However, the Council calculated their holiday pay based on core contractual hours only, on the basis that there was no contractual obligation to do the extra work and, as the work was voluntary, it could not be said to have derived from their contracts.

The Employment Tribunal accepted that the question was not whether the work was “intrinsically linked to the contract” but whether it had become “normal pay”. It held that the voluntary overtime, standby call out work and mileage had been undertaken for such a long period and with such regularity that it had become part of their normal work and accordingly part of their normal pay. The Employment Tribunal therefore determined that any payment that they received for that work had to be included in the calculation of holiday pay (albeit only for the 20 days of holiday that is derived from EU legislation).

So where does this decision leave us in respect of the calculation of holiday pay conundrum?

Whilst there remains no precise test for establishing whether additional payments qualify as “normal” remuneration for the purposes of calculating holiday pay, the case law indicates that additional payments are likely to qualify if:

1. They have a “degree of permanence” (i.e. have been paid regularly); and

2. They are “intrinsically linked” to the performance of the contract of employment by the employee.

Whilst the appellate courts have not yet considered the issue, this decision goes some way in laying the foundations for the principle that voluntary overtime, standby and call-out payments should also be factored into holiday pay, alongside guaranteed and non-guaranteed contractual overtime and commission.

However, there still remain unanswered questions, such as what can be deemed “sufficiently regular” to form “normal pay.” In this case, the pattern was very well established, but this will not always be the case.

Of course, this decision should also be treated with caution as it is only a first instance decision and is therefore not binding on any other employment tribunal. However, it is perhaps a useful indication as to how tribunals may be minded to treat claims relating to voluntary overtime in the future and may well influence courts at a higher level.

If this case is followed, then the correct method of calculation will be to focus on whether the overtime has become part of “normal pay,” and not purely what the contract says. This case might start the ball rolling for individuals who frequently work some additional hours a week, and get paid for those hours, to see this time reflected in their holiday pay. If not, then it may encourage similar employment tribunal claims to be brought.

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