Written by Brabners LLP
The recent Court of Appeal (“CA”) case of Flowers v East of England Ambulance Trust  has confirmed that voluntary overtime should be taken into account when calculating holiday pay where overtime is sufficiently settled and regular to count as normal remuneration.
This is particularly relevant for employers of workers on flexible contracts who may often undertake regular overtime.
What are the practical points employers need to be aware of? Read on to find out more.
What are the holiday pay requirements?
To provide some context, every worker is entitled to paid annual leave of at least four weeks in accordance with national legislation or practice according to Article 7 of the Working Time Directive (“WTD”).
The Working Time Regulations 1998 (“WTR”) implement the WTD into domestic law and confirm that every worker is entitled to 5.6 weeks’ annual leave in each year, in other words, 28 days for full time workers. This includes the eight statutory bank holidays in each year, but there is no requirement that the annual leave days are actually used on bank holidays.
Under the WTR, holiday pay is calculated using a worker’s weekly pay which should reflect a worker’s “normal remuneration”.
As a brief recap, the employees were members of an ambulance crew employed by the East of England Ambulance Trust (“the Trust”). The issue was whether the calculation of holiday pay should factor in two types of overtime:
- Voluntary overtime: where the crew had the freedom to choose whether or not to take it.
- Non-guaranteed overtime: where the crew were part-way through a task at the end of a shift and had to stay to complete it, for example, where they had been dealing with a call made to emergency services.
The crew members made a claim to the tribunal for holiday pay under the terms of their employment contracts, as well as under Article 7 of the WTD. (As a public body the Trust could rely on the WTD rather than the WTR). The crew members argued that both types of overtime should be taken into account when calculating their holiday pay.
The crew members’ contracts of employment provided that holiday pay would “include regularly paid supplements, including… payments for work outside normal hours…”.
Back in 2017, the tribunal held that non-guaranteed overtime should be factored into the holiday pay calculation based on the crews’ contractual terms. By contrast, they found that voluntary overtime was not a contractual obligation therefore should not be included. The Trust conceded that only non-guaranteed overtime, not voluntary overtime, should be included in the calculation of holiday pay in relation to the WTD claim.
Employment Appeal Tribunal (“EAT”) decision
On appeal, the EAT overturned the tribunal’s decision in respect of the voluntary overtime, concluding that this should be included in the holiday pay calculation in respect of both the contractual and WTD claims. In deciding whether voluntary overtime was paid on a sufficiently regular basis, the tribunal made clear that this would be considered on the facts of each case. The Trust appealed the decision.
The CA upheld the EAT’s decision. They concluded that there was no basis for distinguishing between voluntary and non-guaranteed overtime under the crews’ contracts and that voluntary overtime fell under “normal remuneration” and so should be included in the calculation of holiday pay.
In reaching their decision, the CA considered CJEU case law which had established that the calculation of an employee’s annual leave depends on whether the pattern of work is sufficiently regular and settled for payments to amount to “normal remuneration”. They noted that there was no separate requirement that hours of work be compulsory under a contract. The CA also addressed the case of Hein v Albert Hozkamm GmbH & Co KG  where the CJEU had stated that remuneration received for overtime, in principle, does not form part of the remuneration that the worker can claim in respect of holiday pay given its “exceptional and unforeseeable” nature (albeit the issue in this case was not overtime). The CA sought to overcome this by concluding that the CJEU was simply drawing a distinction between exceptional and unforeseeable overtime payments on the one hand and regular and predictable ones on the other.
What can employers learn?
The CA’s decision seems to have been made with policy considerations in mind – in particular the principle that a worker should not be deterred from taking proper rest through annual leave. The CA noted that failing to include voluntary overtime within holiday pay calculations would run the risk of employers setting artificially low levels of basic contractual hours and then classifying the remaining time as “overtime”. The CA suggested that the trend towards zero hours contracts made this a real risk, despite the fact that Flowers itself was not concerned with zero hours contracts.
Practically, employers should ensure they have internal processes in place to ensure that voluntary overtime is included in holiday pay calculations where it is regularly undertaken by workers. Of course what is “regular” is a question of fact and it will be for employers to actively monitor the uptake of voluntary overtime in terms of how this is allocated and who requests it. Whilst this places a greater administrative burden on employers, this could potentially save hefty legal costs down the line if faced with challenges from workers.
Future changes to be aware of
Employers should also keep in mind that the holiday pay reference period for workers without regular fixed working hours will increase from 12 weeks to 52 weeks from 6 April 2020. The rationale behind the change is to ensure that workers that do not have regular working patterns are not disadvantaged by taking their holiday during a quiet period when their weekly pay may be lower.
This bulletin is for general guidance purposes only and should not be used for any other purpose. Brabners is a Limited Liability Partnership.