Regular voluntary overtime included in holiday pay calculations

We previously reported here on the Employment Appeal Tribunal’s decision in Flowers v East of England Ambulance Trust that voluntary overtime, if worked with sufficient regularity, should be included in holiday pay calculations. The case has now been heard by the Court of Appeal, which has agreed with the EAT.

Background

The Claimants in this case worked voluntary overtime from time to time and their contractual terms included a provision which stated that their holiday pay would include “regularly paid supplements, including ... payments for work outside normal hours” and that their holiday pay would be “calculated on the basis of what the individual would have received had he/she been at work”.

However, their holiday pay was not calculated by their employer taking into account the voluntary overtime worked. They consequently brought claims under the Working Time Directive and for breach of contract.

Decision

The Court of Appeal held that failing to take into account voluntary overtime in this case was both contrary to the working time legislation and a breach of their contractual terms.

In relation to the Working Time Directive claim, the court agreed with previous cases on the issue of holiday pay, which have decided that holiday pay should correspond to normal remuneration so as not to discourage the taking of holiday. For a payment to count as normal remuneration, the cases held that it must have been paid over a sufficient period of time on a regular or recurring basis. While the court did not give any guidance on what might amount to a regular or recurring basis, it confirmed that, in this case, the test was satisfied.

In addition, the court held that the wording in the claimant’s contracts gave the employees a contractual right to have any overtime included in the holiday pay calculation as the language was clear and nothing indicated to the contrary.

Comment

The case is a useful confirmation of the principles relevant to holiday pay calculations. For the 4 weeks of annual leave provided by the Working Time Directive, employers must include voluntary overtime in the calculation of pay, provided that the overtime is worked regularly over a sufficient period. It is unfortunate that the court gave no guidance as to how regular the overtime payments must be in order to be included and it will therefore be for a tribunal to decide on a case by case basis.

Whilst it is unusual for an employment contract to set out how holiday pay is to be calculated, the decision highlights the danger to employers of imprecise contractual wording in any context.