UK: Court Of Appeal Confirms Voluntary Overtime Should Be Included In Holiday Pay Under Agenda For Change (For NHS Employers)

Last Updated: 25 June 2019
Article by Nick Chronias and Joanne Bell

The Court of Appeal has upheld the Employment Appeal Tribunal (EAT) decision in Flowers v East of England Ambulance Trust. It confirmed that clause 13.9 of Agenda for Change (AfC), which deals with pay during annual leave, gives a contractual right for voluntary overtime to be included in holiday pay. This is regardless of whether such payments are regular enough to amount to "normal" pay. Holiday pay should be calculated on the basis of what the employee would have been paid if at work based on the previous three months at work, or other locally agreed reference period.

Facts and background

In Flowers, the Claimants were all employed by the Trust in a range of roles providing ambulance services. The Claimants argued the calculation of their holiday pay should take account of (a) non-guaranteed overtime and (b) voluntary overtime. Following previous case law the respondent Trust conceded the claim on non-guaranteed overtime, so the case centered on voluntary overtime.

The claimants brought their claim firstly under the contractual provisions in AfC and secondly under the Working Time Directive (WTD).

At the EAT stage the court followed the EAT decision in Dudley Metropolitan Council v Willetts which looked at the obligation to pay voluntary overtime under the Working Time Regulations (WTR) . In Willetts, the EAT ruled that voluntary overtime should be included in the first four weeks holiday pay where such payments are "regular enough" to amount to "normal" pay.

Importantly, the EAT decision went beyond this and also gave a contractual right to employees under AfC, not just a statutory one under the WTR. The EAT interpreted clause 13.9 to include voluntary overtime. It also decided clause 13.9 describes how to do the maths i.e. holiday pay should be calculated on the basis of what the employee would in fact have been paid if at work based on the previous three months at work, or other locally agreed reference period.

The respondents appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal was clear that AfC required a wide range of payments to be included in the holiday pay calculation.

The Court also went on to approve the decision in Willetts that regular voluntary overtime should be included in WTD holiday pay.

In between the EAT decision and the Court of Appeal hearing, the European Court of Justice (CJEU) made observations in a German case of Hein v Albert Holzkamm GmbH & Co, which appeared to cast doubt on the support Willetts and Flowers give to a general proposition in favour of including voluntary overtime in holiday pay calculations. The CJEU's judgment suggested that employers might not have to factor pay for overtime into holiday pay calculations unless the worker is contractually obliged to work overtime.

The Court of Appeal found the CJEU's judgment both surprising and self-contradictory, and decided that it cannot have been the intention of the CJEU to "perform a handbrake turn" on preceding case law. Accordingly, the Court concluded that, by referring to a contractual requirement, the CJEU was merely seeking to draw a distinction between "exceptional and unforeseeable overtime payments" on the one hand and "broadly regular and predictable ones" on the other (the later should be included in normal pay, the former should not).

What does this mean for NHS employers?

This is an unsurprising decision. Unfortunately it means there is no good news for NHS employers here. The Court has simply confirmed that any overtime pay received by the employee should be included in holiday pay. It has also confirmed the Willets decision so employers cannot draw any comfort on including regular voluntary and predictable overtime in WTD holiday pay either.

As explained in previous alerts, it is significant that this is a contractual right, not just a statutory right under the WTD / WTR. This means that the current position set out in the Bear Scotland case (where employees who have a break of more than three months between payments are not be able to argue that they have suffered a series of unlawful deductions) will not apply. This ultimately may lead to far more costly backdated holiday pay claims for voluntary overtime going back 6 years.

It is possible the respondent may apply for permission to appeal. We will, of course, monitor this case and keep you informed

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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