The EAT has ruled that overtime (voluntary or not) should be taken into account when holiday pay is calculated.

The Working Time Directive is legislation that protects the safety and health of the worker. Article 7 of the Working Time Directive includes the rights of workers to holiday. This is a proportionate period of respite necessary for Employee’s health, and as such the principles enshrined in that legislation mean that an Employee must not be penalised.

The recent EAT decision follows the European rulings in Stringer v HMRC [2009] IRLR 214 214, which allowed for the carry over of holiday at the end of a year where leave could not be taken due to sickness, and the case of Dominguez v Centre informatique du centre Ouest Atlantique [2012] IRLR 321, which decided that Article 7 of the Working Time Directive (EU law), which confers the right to four weeks annual leave, has direct effect to EU member state’s national laws.

The European decision has resulted in a turn around of the position taken by the UK courts and a rewriting of national provisions for the benefit of employees.

Dominguez had resulted in the strike down of the Court of Appeal ruling in East Riding of Yorkshire Council v Gibson [2000] IRLR 598 where the Court of Appeal held that lack of precision in Article 7 precludes its having direct effect in national law.

In the case of Barnsley v Albon Engineering and Manufacturing [2004] IRLR 457, the Court of Appeal had decided that overtime that was voluntary and not guaranteed did not count towards holiday pay entitlement based on the provisions of Section 234 Employment Rights Act 1996, which defines normal working hours.

However, the overtime appeals in the now much publicised Employment Appeal case of Bear Scotland v Fulton against the ET ruling, have been finally decided upon. The ratio of the case can be summarised simply, as deciding that Article 7 of the Working Time Directive is to be interpreted in the UK to allow time worked as overtime to be included for the purposes of calculating holiday pay.

Article 7 provides:

(1) “Member states shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.

(2) The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.

In a number of occupations where overtime is worked consistently, the Employee was not paid holiday proportionately to time worked, which resulted in Employees receiving considerably less pay on holiday than they did when they were working, so in effect workers were penalised for taking time off from work.

This decision will undoubtedly result in a number of claims, as Employers are now obliged to include overtime in calculating holiday pay.

Any claim made as an unlawful deduction for wages under Section 13 ERA 1996 is subject to jurisdictional time limit of having to bring the claim within three months of the unlawful deduction, which includes the last unlawful deduction of a series of deductions under Section 23 (3) ERA 1996.

It may be prudent for Employers to come to agreed ex gratia payment before they face claims for holiday pay going back years as a series of unlawful deductions claim.

It is this writers opinion based on cases such as Stringer that irrespective of any appeal, the decision of the EAT will be upheld. 

Written by Nabila Mallick