Holiday Pay [Dudley Metropolitan Borough Council v Willetts & Others]

When a worker is on holiday, they are entitled to be paid their “normal remuneration”.  There is no statutory definition of “normal remuneration”.

There have been a series of cases which have looked at what kind of payments should be classed as “normal remuneration”, and should be taken into account for holiday pay purposes. What about overtime?

In the case of Bear Scotland v Fulton, the Employment Appeal Tribunal decided that holiday pay should include non-guaranteed overtime (that is, overtime that the employee is obliged to work if required, but the employer is not obliged to provide). The question of purely voluntary overtime (where there is no obligation on either side) was not expressly dealt with in the case. Many employers had therefore taken a “wait and see” approach to voluntary overtime.

Recently, in Dudley Metropolitan Borough Council v Willetts & Others, the Employment Appeal Tribunal has decided that pay for regular voluntary overtime should be taken into account for holiday pay purposes. Essentially, the test is whether the payments are regular enough to amount to “normal remuneration”.

In this case, in addition to the claimants’ set contractual hours, they volunteered to carry out additional duties and overtime, which they were not required to carry out and which the employer could not enforce on them.

The Employment Appeal Tribunal said that where a pattern of work, though voluntary, extends for a sufficient period of time on a regular and / or recurring basis to justify the description “normal”, the question is whether it is “sufficiently regular and settled” to amount to normal remuneration. It decided that the pattern of voluntary overtime carried out by the claimants in this particular case should be taken into account for holiday pay purposes. It stated that the rationale for including regular, voluntary overtime in holiday pay is that if it was not included, it might deter workers from taking holiday, as they would be financially disadvantaged when on leave compared to when they were actually at work.

The impact of this case for employers

This case only related to the 4 weeks’ holiday which workers are entitled to under the Working Time Directive, not the additional 1.6 weeks under national law.

The case is not surprising given the recent direction of travel in holiday cases. The case may be appealed to the Court of Appeal, but for now the decision stands. However, there is an important unanswered question; the decision did not say exactly how often overtime had to be worked to be classed as regular and settled. If employers do have a regular pattern of overtime in their business, they may be advised to carry out an audit and take advice on whether they need to adjust their holiday pay calculation, which will of course increase their costs. What is clear, is that overtime which is “ad hoc” does not have to be taken into account.

There are some points which may mitigate potential exposure. Where a worker claims unlawful deduction from wages based on not having had the right holiday pay, they may be barred from making a claim where there has been a break of more than three months between payments. Further, any claim for a series of deductions can only go back two years.

Please get in touch with our Employment team if you have any questions about how this might impact your business.