Landmark ruling confirms previous case law by concluding ‘sufficiently regular and settled overtime’ should be considered part of ‘normal remuneration’ for the purposes of calculating holiday pay.
In East of England Ambulance NHS Trust v Flowers, the claimants all undertook non-guaranteed overtime, which was required as part of their contract, and voluntary overtime, that they were not required to work but could do if they wished. They brought proceedings for unlawful deduction from wages as both forms of overtime were not included in calculations for their holiday pay.
The employment tribunal (ET) originally held that only the non-guaranteed overtime should be counted as the employees could choose whether or not to work the voluntary overtime and the service was not dependent on them doing so. The Employment Appeal Tribunal (EAT) disagreed with this, outlining that normal remuneration must be maintained in respect of a period of annual leave and that this could include voluntary overtime payments.
The Court of Appeal has now upheld this decision, confirming that the question to be considered in calculating holiday pay is whether the voluntary overtime is ‘sufficiently regular and settled’ and there is no requirement for these hours to be compulsory within the contract of employment. Despite this, further guidance was not provided on how to determine whether voluntary overtime is ‘sufficiently regular’ or ‘settled’ and this will depend upon the facts of each case, such as the regularity of the overtime and whether overtime pay is included in every pay packet.
Organisations should now bear in mind that, although there has been no change in the law, a failure to include voluntary overtime payments in holiday pay calculations could result in an organisation losing an ET claim. This is because the judgement is at Court of Appeal level and is therefore binding on any other case that may be heard at tribunal. A successful claim for unlawful deductions from wages can result in back pay for a maximum of two years where there is a gap of less than three months between each underpayment.
It is important to note that this decision only relates to the four weeks of annual leave provided by the EU Working Time Directive. This does not apply to the additional 1.6 weeks of leave that has been added to this statutory minimum under UK law. It is also yet to be confirmed if this decision will be appealed to the Supreme Court, so organisations would be wise to keep up to date with any ongoing developments.