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Holiday Pay Update - Is the law on overtime and holiday pay any clearer?


Holiday Pay Update - Is the law on overtime and holiday pay any clearer?

Employment Law specialist Noele McClelland looks at recent cases which have been shaped by claims involving holiday pay.

For employment law, the end of 2014 was dominated by issues about how holiday paywas to be calculated and in our predictions for 2015; we said we doubted the law would remain stable for long. We seem to have been right and as our minds turn to summer holidays, a quick review of what the first 6 months of the year has brought is useful.

Last year, we all discovered through two cases (Lock v British Gas and Fulton v Bear Scotland) that the way holiday pay has been calculated for many years was, in fact, wrong.  According to a recent update from the Employment Tribunal Service, in Scotland there are currently just under 21,000 claims involving approximately 321 employers. So is the law any clearer as we start the second half of 2015?

Lock, which determined that commission payments should be included in holiday pay calculations, was referred back to the Employment Tribunal to make various determinations on the particular facts of the case.  Unfortunately the Tribunal’s decision, did not address the issues of concern to most people – the pay reference period and how to quantify such claims.  It is now being appealed on other grounds so it is unlikely we’ll get any clarity on these points soon!

Fulton v Bear Scotland established that guaranteed and non-guaranteed overtime should be included in holiday pay calculations. With the decision not being appealed, some key questions remained unanswered including should “voluntary” overtime be included in holiday pay calculations. In essence, where an employer is under no obligation to offer employees paid overtime and an employee has no contractual obligation to work any offered overtime, does any such overtime the employee does work count when working out the rate of holiday pay?

Legal commentators felt that the direction of the caselaw was towards any voluntary element being included within the calculation of holiday pay. On 26 June the Northern Irish Court of Appeal in Patterson v Castlereagh Borough Council provided the first judgment on purely voluntary overtime finding “there is no reason why voluntary overtime should not be included as part of a determination of entitlement to paid annual leave”. So is the law now settled and the scope of potential claims considerably widened?

Well no, not necessarily.

Firstly, the judgement in Castlereagh is from the Court of Appeal in Northern Ireland so it is not legally binding in England, Wales or Scotland, but it is persuasive and will undoubtedly be taken into consideration when the issue is next addressed in the courts. However it is not a particularly robust decision.

The Appeal Court in did not have to consider the matter in great detail or have robust opposing arguments to weigh up. This was because the senior barrister acting for the employer conceded the principle of the inclusion of voluntary overtime at the start of the hearing. On that basis the decision was inevitable. The judges themselves stated that their conclusions “must therefore be read in this light and with that degree of caution attached to them”. They did consider the background authorities (but did not analyse them in any detail) and ominously concluded the barrister’s concession was well founded.

Unfortunately, having reached a view on the general principle, the judges then did not provide any guidance on how to determine whether any voluntary overtime was “normally” carried out by an employee and had a “permanent enough feature” to include it in any calculation.  Other cases have held that there should be a “settled pattern of work” or for overtime to be carried out systematically and that there should be a direct link between overtime and what tasks a worker is required to carry out.  All these are very fact specific and difficult to determine apart in those cases where overtime is being carried out almost all the time and an employee couldn’t fulfil their duties without doing it.  The judges in Castlereagh ruled that it was for each individual tribunal to decide whether in the specific circumstances voluntary overtime was “normally carried out by the worker and carried with it the appropriately permanent feature of remuneration to trigger its inclusion in the calculation”.

So for now, while the battle of what is or is not to be included may have moved on, the specifics remain unclear. What is apparent is that question of what is “normal” for an employee to do in respect of overtime will be very important. It can only be hoped that the latter half of 2015 will provide clarity for employers and employees alike on holiday pay.

In the meantime, if holidays beckon, enjoy the break.

For more information or assistance please contact Noele McClelland or a member of the Employment Law team on 01382 229111 or email nmcclelland@thorntons-law.co.uk

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