Under Article 7 of the Working Time Directive (WTD), Member States must ensure that workers have the right to at least 4 weeks’ paid annual leave. The WTD is implemented into UK law by the Working Time Regulations (WTR). The WTR provides workers with 5.6 weeks’ annual leave, of which 4 weeks’ is derived from the WTD.
Workers are entitled to be paid at the rate of a “week’s pay” for each week of leave, calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996. For workers with normal working hours, a “week’s pay” in both of these pieces of legislation includes basic salary, but excludes payments for commission and overtime. Although the WTD does not specify how statutory holiday pay should be calculated, a growing body of European case law suggests that the UK’s approach to calculating annual leave is insufficient. For example:
In Williams and others v British Airways plc (2011), the ECJ ruled that: “workers must receive their normal remuneration for that period of rest”. The ECJ expanded on the concept of “normal remuneration” to hold that a worker on holiday is entitled not only to basic salary, but also to any aspect of pay which is: “linked intrinsically to the performance of the tasks which he is required to carry out under his contract of employment.” This opened the door for workers with normal working hours to seek to include other components of pay in their holiday pay.
In Lock v British Gas (2014), the ECJ held that where a worker was paid commission calculated on the basis of the sale that he had made, that commission must also be included.
The UK Tribunals have applied some of the principles set down by the ECJ in relation to overtime and commission payments.
In November 2014, in the combined cases of Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood and others; and Amex Group Ltd v Law and others (Bear Scotland), the Employment Appeal Tribunal (EAT) held that non-guaranteed but compulsory overtime should be included in holiday pay provided that it was “normal remuneration”. You can read our detailed report on this decision here. The EAT did not make any findings in relation to purely voluntary overtime, because the issue was not engaged in any of the cases in question.
However, in June 2015, the issue of voluntary overtime came before the Northern Ireland Court of Appeal (NICA) in the case of Patterson v Castlereagh Borough Council. This case concerned whether payments in respect of purely voluntary overtime hours worked by Mr Patterson in his normal role should be included in the calculation of his holiday pay. The NICA held that there was no reason why voluntary overtime should not be included in statutory paid annual leave. It was a question of fact for each Tribunal to determine whether or not the voluntary overtime is normally carried out and the remuneration is sufficiently permanent to mean it should be included. The NICA’s decision is only binding in Northern Ireland and not the rest of the UK. However, NICA decisions are considered persuasive by British courts and tribunals where there are no existing binding cases on the point.
In February 2016, the EAT upheld an earlier Tribunal decision that the WTR could be read purposively to allow commission and similar payments to be included in holiday pay. The EAT decided that there was no basis upon which commission and overtime should be treated differently. It was held that the EAT in the Bear Scotland case had already decided that the WTR could be interpreted to conform with the WTD, and this was of persuasive authority and should be followed. You can read our detailed report on this decision here.
British Gas has appealed this decision and the Court of Appeal hearing is to take place on 11 or 12 July 2016.
The 56 claimants were employed by Dudley Metropolitan Borough Council (Dudley) as tradesman involved in the repair and maintenance of Dudley’s housing stock. The claimants had fixed contractual working hours (a few also worked a some additional hours of compulsory and guaranteed overtime). All of the claimants worked additional voluntary overtime. They also volunteered to be placed on a “standby” and “call out” rota for out-of-hours emergency work. The claimants were paid for their voluntary overtime and their standby and call out time. They also received a mileage allowance.
Dudley calculated holiday pay based on contractual hours only. They excluded voluntary overtime payments, standby and call out payments and the mileage allowance. The claimants brought Tribunal claims arguing that these additional sums should have been included in their holiday pay.
The Tribunal decided that the additional payments had been paid with such regularity that they were part of the claimants’ normal pay. As a result, the Tribunal concluded that these additional payments had to be included in holiday pay in respect of the 20 days’ annual leave arising under the WTD. The additional payments did not have to be included in holiday pay in respect of the additional 8 days’ arising under the WTR (or any additional contractual entitlement in excess of this).
In light of this decision, some employers may consider adjusting the calculation of holiday pay to include relevant voluntary payments. However, it should be remembered that this is a first instance Tribunal decision and it is not binding on other Tribunals. It is also not yet known whether Dudley will appeal this decision.
Further, the forthcoming appeal in the Lock case is of relevance to the inclusion of overtime payments and other payments / allowances in holiday pay. If British Gas were to succeed at the Court of Appeal, then the result would be that the WTR could not be read purposively to give effect to the WTD requirement that components of pay such as commission and overtime should be included in holiday pay. Absent a further appeal by Mr Lock, the next step would be for the Government to rewrite the WTR to give effect to the WTD. Private sector employers would only be obliged to adjust the calculation of holiday pay once the WTR was rewritten.