187: Holiday pay must include regular voluntary overtime

In East of England Ambulance Service NHS Trust v Flowers and others, the Court of Appeal has confirmed that voluntary overtime should be included in holiday pay under the Working Time Directive if it is sufficiently regular and settled to amount to normal remuneration.

Mr Flowers and his colleagues work in various roles providing ambulance services for the East of England Ambulance Service NHS Trust. A dispute arose as to whether the calculation of their holiday pay should include non-guaranteed and voluntary overtime. Non-guaranteed overtime related to shift overrun payments, when an employee was obliged to work after the end of a shift in order to finish a task, for example, dealing with an emergency call-out.

Whilst non-guaranteed overtime was mandatory, employees were completely free to choose whether to work voluntary overtime. The NHS Terms and Conditions of Service stated that holiday pay should include regularly paid supplements, including payments for work outside normal hours, calculated on the basis of what the individual would have received had they been at work and based on the previous three months or another agreed reference period. Mr Flowers and other claimants alleged that failure to include non-guaranteed and voluntary overtime in their holiday pay amounted to breach of these contractual terms as well as breach of the EU Working Time Directive.

The Employment Tribunal held that non-guaranteed overtime should be included in the claimants’ holiday pay, both contractually and under the Working Time Directive. It also ruled that voluntary overtime did not need to be included since it was not a contractual requirement and did not form part of their normal remuneration.

On appeal, however, the Employment Appeal Tribunal (EAT) held that there was no basis to distinguish between non-guaranteed and voluntary overtime in the wording of the NHS Terms and Conditions of Service and that both types of overtime should, therefore, be included in holiday pay calculations. Following the judgment in Dudley MBC v Willetts, which was published after the Employment Tribunal’s decision, in this case, the EAT also ruled that voluntary overtime should be included if it was paid over a sufficient period of time on a regular or recurring basis to amount to normal remuneration. This would be a matter of fact for a Tribunal to decide in each case. The Ambulance Service appealed to the Court of Appeal.

Agreeing with the EAT, the Court of Appeal confirmed that the NHS Terms and Conditions created a contractual entitlement to have both voluntary overtime and non-guaranteed overtime included in holiday pay. The Court of Appeal also confirmed the reasoning in Dudley MBC v Willetts that holiday pay must reflect normal remuneration, otherwise workers might be discouraged from taking annual leave which is required by the EU Working Time Directive. In order to count as normal remuneration, the overtime must have been paid over a sufficient period of time, on a regular or recurring basis. The claimants were therefore also entitled under the Working Time Directive to be paid voluntary overtime if these conditions were met.

This judgment confirms the overriding principle that regular or recurring voluntary overtime must be included in holiday pay. Although it will often be obvious whether voluntary overtime is sufficiently regular or recurring, there will no doubt be many cases where there is scope for argument, and ultimately this would be a question for Tribunals to consider on a case-by-case basis. Employers should now be reviewing all types of overtime and considering whether continuing to treat them differently as regards holiday pay is sustainable, given the potential employee relations issues and legal difficulties. However, it should be noted that the Ambulance Trust has applied for permission to appeal to the Supreme Court.