The EAT considered the overtime payments from both a contractual and a Working Time Directive ("WTD") perspective (WTD rather than Working Time Regulations 1999 ("WTR") as the Trust is an emanation of the state and so the WTD has direct effect).
The current case centred on holiday pay claims brought by the Trust's employees arguing that their holiday pay calculation had failed to include
- Non-guaranteed overtime.
- Voluntary overtime.
The non-guaranteed overtime occurs when an employee is at the end of a shift but is in the middle of a job which must be completed. The voluntary overtime occurs where an employee genuinely volunteers for an extra shift.
The clause in question
Clause 13.9 of the NHS contract states:
"Pay during annual leave will include regularly paid supplements, including any recruitment and retention premia, payments for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received had he/she been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed."
The Employment Tribunal
From a contractual perspective the Tribunal found that non-guaranteed overtime should be included in the holiday pay calculation but that voluntary overtime should not.
The Trust conceded the WTD claim in respect of non-guaranteed overtime following Bear Scotland v Fulton.
Under the WTD the Tribunal noted the concession of the Trust that non-guaranteed overtime should be included in the holiday pay calculation but found that voluntary overtime was not normal remuneration and so need not be taken into account.
The employees appealed against the voluntary overtime finding and the Trust cross-appealed against the contractual non-guaranteed overtime finding.
When considering the contractual claim the EAT found that the correct holiday pay calculation should include all overtime worked, whether non-guaranteed or voluntary. The purpose of clause 13.9 was to ensure the employee received holiday pay in line with what he/she would have received had they been in work, based on a three month reference period (or as otherwise agreed).
When considering the WTD claim the EAT focused on the case of Dudley Metropolitan Borough Council v Willets which confirmed the overarching principle that normal remuneration must be maintained in respect of annual leave, as guaranteed by Article 7 of the WTD.
The EAT in the current case made it clear that it was "wrong to hold that voluntary overtime necessarily fell outside the calculation of annual leave pay under the WTD". The claims would need to be remitted for a case-by-case assessment to consider whether the pattern of voluntary overtime was paid with sufficient regularity to constitute "normal pay".
The outcome of this case is unsurprising following the EAT decision in Dudley. However, employers should be careful with regard to any contractual obligations which they create. Under the WTD voluntary overtime need only be included in the calculation when it is considered normal remuneration (paid with sufficient regularity etc). However, well-intentioned but not properly thought out wording in a contract may inadvertently create contractual rights to holiday pay that includes voluntary overtime regardless of whether it is paid with sufficient regularity.
Consequently, as a result of this case, employers need to be mindful of creating express contractual rights to holiday pay and the possibility of a breach of contract claim resulting in:
- the more favourable six year limitation period (five in Scotland);
- the absence of the rule that a period of three months or more between underpayments results in earlier underpayments being excluded; and
- the absence of the two year back stop rule on unlawful deductions from wages claims.
We understand an appeal is being sought.