Court of Appeal confirms voluntary overtime must be included in holiday pay

Last year, we reported the case of Flowers v East of England Ambulance Trust, where the EAT ruled that NHS staff employed under the 'Agenda for Change' terms and conditions of employment should have all voluntary overtime payments included in their holiday pay even if they are not regularly worked. Because this was a contractual right, they could recover underpayments going back up to six years.

To read the background to the case and our analysis of the EAT decision, please click here.

This week, the Court of Appeal agreed that the staff had a contractual right to have voluntary overtime taken into account to determine their holiday pay and could have dismissed the employer's appeal without considering the wider implications under the Working Time Directive. However, it recognised this was an important issue for thousands of employers and made decisive findings that are relevant to all employers - large or small.

The basic principle is that workers are entitled to receive 'normal' remuneration when they go on holiday.

Specifically:

1. Voluntary overtime payments should be included if they extend for a sufficient period of time on a regular or recurring basis.
2. Allowances relating to the professional and personal status of workers should also be included if they are regularly included in their pay. This might include payments linked to seniority, length of service or professional qualifications.
3. Payments to cover ancillary costs incurred by the worker, such as mileage expenses don't have to be included.

This decision confirms that the EAT's decision in Dudley Metropolitan Borough Council v Willetts was correctly decided. You can read our review of that case here. 

There had been some uncertainty about whether that case had been correctly decided following a recent CJEU decision which appeared to have muddied the waters. The Court of Appeal said, despite ambiguity in the language used by the CJEU in Hein v Albert Holzhamm GmbH, they didn't believe it intended to perform, what it described as a 'handbreak turn' and contradict so much of what they had previously said on holiday pay.

Implications

Employers will still have to decide whether overtime (and other relevant payments) have been paid on a 'broadly regular and predicable' basis to count. Our view is that regular doesn't necessarily mean additional payments are made every week or month and could be determined over a longer period.

The requirement to include overtime, commission and other payments in workers' holiday pay only apply to the first four weeks - and you can revert to basic pay for the remaining holidays.

Need more information?

Many employers are still confused about what to include in holiday pay. We have produced a comprehensive guide and if you'd like a copy, please contact our holiday pay expert, partner Glenn Hayes.