Back in March, following the Employment Appeal Tribunal’s (“EAT”) decision in Bear Scotland v Fulton and other cases, we looked at whether holiday pay should include any overtime worked by an employee.
Bear Scotland confirmed that certain payments should be included when calculating an employee’s normal weekly pay for holiday pay purposes. These included:
1. guaranteed compulsory overtime (i.e. overtime guaranteed under the Contract, whether or not available);
2. non-guaranteed overtime, (i.e. an employee is obliged to work overtime and be paid for it, if it is offered); and
3. certain allowance payments (where the payments are intrinsically linked to the performance of tasks under the contract)
Due to the Judge’s comments in Bear Scotland, however, it seemed that a decision in relation to the inclusion of voluntary overtime in holiday pay calculations would only be a matter of time.
There was, however, no further guidance with regards to voluntary overtime (overtime which the employer is not obliged to provide and the employee is not obliged to perform) …… until now!
In the Northern Irish case of Patterson v Castlereagh, the Court of Appeal of Northern Ireland has somewhat cautiously, decided that employers should include voluntary overtime when calculating an employee’s holiday pay.
Mr Patterson was employed by Castlereagh Borough Council on two concurrent contracts, one as a relief/casual worker and the other a full time contract of employment as an Assistant Plant Engineer. He claimed that an unlawful deduction had been made from his wages in relation to holiday pay in respect of both his contracts. Part of Castlereagh’s defence was that this overtime was not compulsory, but overtime that Mr Patterson had volunteered to perform.
The Northern Irish Industrial Tribunal held that voluntary overtime should not be included in holiday pay calculations, which was welcome news for employers across the country following the Bear Scotland decision. However, Mr Patterson appealed this decision to the Northern Ireland Court of Appeal.
The Court of Appeal held that the Industrial Tribunal’s determination in respect of voluntary overtime was mistaken. In principle, there is no reason why voluntary overtime cannot constitute part of ‘normal’ working hours.
Unhelpfully, however, the Court of Appeal did not provide guidelines as to the tests an employer needs to apply in determining holiday pay and stressed that this was a ‘question of fact’ for each tribunal to determine, based on the particular circumstances of each individual case.
Lord Justice Gillen also acknowledged that this latest judgment in the myriad of holiday pay related cases ‘certainly will not be the last’.
What does this mean in practice?
Although decisions from the Northern Irish Court of Appeal are not legally binding on the courts and tribunals in England and Wales, employers should be aware of the potential ramifications of this most recent decision in the continuing holiday pay saga and albeit, as a persuasive authority.
There will be cases which look at this issue in England and Wales shortly. In the meantime, we suggest that employers review their practices and contractual obligations in relation to overtime and allowances and how they calculate holiday pay. Indeed, as a lot of businesses offer voluntary overtime, they may, therefore, have historic and future liabilities in this regard.
Do bear in mind the significant cost and practical issues the reason in Bear Scotland would cause for employers, the government introduced a 2 year limit for backdated unlawful deductions from wages claims. This new rule came into force on 1 July 2015 and applies to any new claims from that date.
For more information in relation to calculating holiday pay, please see the following:
If you are interested in a holiday pay audit, please contact a member of our Employment Team.