Holiday pay, yet again – voluntary overtime should be included (preliminary ruling)

This time a Northern Irish tribunal rules that voluntary overtime should be included in holiday pay calculations. This is yet another development in the long running holiday pay saga that could have significant implications for UK employers.

Mr Patterson worked an average of 4 hours a week, grossing him around £60. Unlike earlier holiday pay cases though, his employment contract stipulated that overtime was purely voluntary – the employer didn’t have to offer it, he didn’t have to work it if it was offered. Applying earlier rulings we would conclude that Mr Patterson’s overtime should be excluded for the purposes of holiday pay, but the Northern Ireland tribunal took a different view.

In justifying its opinion that the voluntary overtime should be included, it cited a basic principle of the working time directive which requires employers not to dissuade employees from taking holiday by placing them at any disadvantage while they were on holiday, with one potential disadvantage being a lower rate of holiday pay than their ‘normal pay’. What is ‘normal’ when it comes to pay has been the subject of a myriad of court cases – in Williams Vs British Airways a flying pay allowance was judged to be normal remuneration when working (but an expenses allowance was excluded); in Lock Vs British Gas the European Court of Justice ruled that Mr Lock should receive commission pay while he was on holiday since he was normally paid commission on his sales when he was working; and in Bear Scotland Ltd the Employment Appeal Tribunal said that non-guaranteed overtime (that is, overtime that the employer did not guarantee, but required the worker to work it if it was offered) should be regarded as normal pay for the period in which it was required.

In the case of Mr Patterson, the tribunal looked at the last 13 weeks of his work and decided that over that period he normally worked 4 hours overtime and so his ‘normal’ pay should be expressed as to include that amount. Whilst Northern Irish decisions are not binding on the rest of the UK, this case is significant and UK courts are likely to make note of it when assessing similar cases. Potentially then employees may be able to lodge back pay claims for up to 2 years if their voluntary overtime has not been included in their holiday pay.

The tribunal’s lack of clarity about its view on precisely under which circumstances we should include voluntary overtime in holiday pay means that there is still considerable uncertainty, and most employers will want to take note of this judgement but not necessarily do much about it. There is an argument for the most cautious of employers to include voluntary overtime pay (though that is not our advice for the time being), with the logic being that claims can only be brought in the case of a breach that happened in the last 3 months. As there is no chance of a binding judgement happening in that time period, and so if an employer decided to factor voluntary overtime into holiday pay from today, they would be protected from future back pay claims.

As sure as eggs are eggs, there will be more holiday pay cases to come!

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