Holiday pay: overtime and back pay claims


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The Court of Appeal has held in East of England Ambulance Service NHS Trust v Neil Flowers and ors that the NHS Terms and Conditions of Service give employees a contractual entitlement to have both non-guaranteed and voluntary overtime included in the calculation of holiday pay.

The claimants, a group of NHS employees, brought employment tribunal claims for unlawful deductions from wages, arguing that the calculation of their holiday pay had failed to take account of overtime classified as "non-guaranteed overtime" and "voluntary" overtime. "Non-guaranteed overtime" occurred when, at the end of a shift, an employee was in the middle of a task that had to be seen through to completion, and "voluntary" overtime arose when an employee volunteered to work extra shifts. The claimants argued that they had a contractual entitlement under the NHS terms and conditions of service, and also under Article 7 of the Working Time Directive (WTD) where holiday pay had to correspond to "normal remuneration".

The Court of Appeal held that the claimants were contractually entitled to have both their voluntary and non-guaranteed overtime taken into account for the purposes of calculating holiday pay. Although it was not then strictly necessary to consider the position under the WTD, the Court decided to do so. It held that, provided that the non-guaranteed and voluntary overtime were sufficiently regular and paid over a sufficient period, they should be included in the calculation of holiday pay.

Meanwhile, the Court of Appeal in Northern Ireland (NICA) has held in Chief Constable of Northern Ireland Police v Agnew that a gap of more than 3 months in a series of deductions from wages does not break that series for the purposes of the Employment Rights (Northern Ireland) Order 1996 (ERO).

The claimants, over 3,300 police officers and 364 civilian employees, brought claims for unlawful deductions under the ERO and claims for underpayment of holiday under the Working Time (Northern Ireland) Regulations 1998 (WTR (NI) 1998). The respondents admitted that, since the implementation of the WTR (NI) 1998 on 23 November 1998 they had calculated holiday pay by reference to basic salary, instead of by reference to normal pay including overtime. They argued that the decision in Bear Scotland Ltd v Fulton, that a gap of more than 3 months between deductions broke the series, was wrong and the NICA agreed. Lord Justice Stephens held that if there was "a sufficient similarity of subject matter, such that each event is factually linked with the next…in the alleged series..." that would be enough to amount to a series.

Take note: The decision in Flowers confirms that if voluntary overtime is worked on a regular basis it should be incorporated into holiday pay calculations. There is no guidance as to when a payment is sufficiently regular to count towards holiday pay but, from a practical perspective, it might be easiest for employers to include all overtime payments in their holiday pay calculations to avoid the risk of claims, and the extra administration costs of differentiating between different types of overtime.

Meanwhile, although the decision in Agnew is not legally binding on tribunals in Great Britain who will still be required to follow the decision in Bear Scotland, it will provide strong persuasive authority on any future appeal. In the event that the decision is appealed to the Supreme Court the outcome would be binding throughout the UK.

This article is taken from HR Law – July 2019

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