The EAT has ruled in Dudley Metropolitan Borough Council v Mr G Willetts and others that remuneration linked to overtime work performed on a voluntary basis could be included in normal remuneration for the purpose of calculating holiday pay.
Dudley Metropolitan Borough Council v Mr G Willetts and others, involved a group of 56 employees, responsible for the repair and improvement of council-owned housing stock. Each employee had set contractual hours each week which represented their normal working hours. In addition, they volunteered to work overtime and elected to go on a standby rota for emergency call-outs. The additional overtime work, for which the employees received pay in the form of out-of-hours standby pay, call out allowance, voluntary overtime, or travel allowance, was entirely voluntary.
The employees argued that payments for “voluntary” work which is normally undertaken should be included in holiday pay calculations. Failure to do so, they alleged, would result in financial disadvantage and might deter workers from taking annual leave. UNITE have alleged that the underpayment of holiday pay amounts to between £350 and £1,500 per employee.
While recognising that it was sailing into unchartered waters, the Employment Tribunal agreed with the employees. The Employment Tribunal held that payments received in respect of entirely voluntary overtime should be treated as forming part of the worker’s normal remuneration for the purposes of calculating holiday pay for the four-week period of annual leave guaranteed by Working Time Directive (implemented by Regulation 13 of the Working Time Regulations 1998).
The Council challenged the decision on the basis that such payments should not count as “normal remuneration” because they lacked the necessary intrinsic link to the performance of tasks required under the contract of employment.
The EAT dismissed the Council’s appeal.
The EAT confirmed the overriding principle that holiday pay entitlement should not be limited to basic salary but must correspond to the “normal remuneration” received by the worker when they are working. Reviewing the decisions of the CJEU in British Airways Plc v Williams and others and Lock v British Gas Trading Ltd on the question of what constitutes “normal remuneration”, along with domestic authority, the EAT determined that the Council’s argument had placed too much weight on the reference to the tasks required to be carried out under the contract of employment. The EAT held that if there is an intrinsic link between the payment and the performance of taks required under the contract, that is decisive of the question of whether it is included within normal remuneration. However, the absence of a link does not automatically mean that a payment need not be taken into account. They went on to say that if they were wrong on that point they would have found an intrinsic link in this case.
The EAT stated that “The question in every case, irrespective of the label put on the payment, is whether the payment forms part of the worker’s normal remuneration? In a case where the pattern of work extends for a sufficient period of time on a regular and/or recurring basis to justify the description of “normal”, the payments made in respect of it amount to normal remuneration. If payments for voluntary shifts, standby or callout payments are normally paid, they must be included in pay for holiday leave to ensure that there is no financial disadvantage as a result of taking such leave, irrespective of the source of the obligation to perform the work in question”.
Nicola Butterworth comments: "This is a significant decision, particularly for businesses that operate voluntary overtime arrangements. Although it is now clear that payments for voluntary overtime can be included in holiday pay calculations, it will still fall on employers to decide whether they should be included. This will depend on whether the pattern of work is sufficiently regular and settled. Following the recent quashing of ET fees, employers are at greater risk of holiday pay claims. We have extensive experience in advising employers on holiday pay disputes and can assist organisations in resolving the practical and legal issues that arise in connection with holiday rights."
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