In a case called Dudley Metropolitan Borough Council v Willetts, the Employment Appeal Tribunal (EAT) has provided welcome clarification of the correct treatment of holiday pay for employees who work regular voluntary overtime. Up until now, caselaw on holiday pay and overtime has focussed on employees who work compulsory overtime and the question of whether the same principles apply to voluntary overtime has been left unanswered.
The EAT have now confirmed that holiday pay should take account of regularly worked voluntary overtime, in line with the reasoning in a recent run of holiday pay cases.
In the Dudley case, 56 employees of Dudley Metropolitan Borough Council ('the Council') brought claims for incorrect payment of statutory holiday pay. Each employee had set contractual hours, but in addition volunteered to undertake overtime work which was not required by their contracts of employment. Some employees volunteered for on call work, where they signed up to a rota when they wanted to work and were paid a standby allowance for the time they were on call, and a call-out payment if they were actually required to attend a call out. Participation in these rotas was completely voluntary. The employees contended that their statutory holiday pay should reflect voluntary overtime, out-of-hours standby pay, call-out payments and mileage allowances which were paid for work-related travel.
The EAT agreed with the employees and held that regular payment of voluntary overtime, on-call allowances and out of hours payments must be taken into account when calculating holiday pay; in other words, holiday pay should reflect what the employee would normally have earned if they had not taken leave.
The EAT's reasoning was based on the requirement that employees should not suffer a disadvantage in taking leave, and must receive 'normal' or average pay. The key factor was whether the voluntary overtime payment was received regularly and consistently. Although judicial guidance was not provided on this point, it is likely that a 12 week reference period could be used to calculate average pay where an employee has normally worked voluntary overtime but in an irregular pattern.
So what counts as overtime which is 'normally' worked? This will be a question of fact and degree, depending on the particular circumstances, but overtime payments should be included where they are not rare or unusual. In the Dudley case, payments made one week in five counted as 'normal pay'.
Finally, an important point to note is that the decision in Dudley applies only to the 4 weeks' annual leave to which employees are entitled under the Working Time Directive; it does not apply to
- the additional 1.6 weeks' leave to which employees are entitled to under domestic legislation, or
- to any other additional leave under the contract.
However, most employers will find it administratively easier to take a single approach towards both types of leave.