News & Insights

Exceptional and unforeseeable?

Our employment team offers further clarification on voluntary overtime and holiday pay.

The cases on the correct calculation of holiday pay just keep coming, particularly those considering the impact of different types of overtime.  Caselaw has previously determined that overtime which is guaranteed and compulsory must be included in calculating the pay due during the minimum four weeks of annual leave required by European legislation.  The Employment Appeal Tribunal had taken this a step further finding that voluntary overtime pay should also be taken into account (even if there is no obligation on the worker to accept the offer of overtime) as long as the overtime is carried out sufficiently regularly.  However the decision of the European Court of Justice in Hein v Albert Holzkamm GmbH & Co. had potentially cast some doubt on this decision.

In seemingly contradictory statements within its judgment in the Hein case, the ECJ had stated that remuneration for overtime does not in principle form part of the normal remuneration a worker may claim in respect of paid annual leave because of its exceptional and unforeseeable nature.  However, when obligations arising from the employment contract require the worker to work overtime on a broadly regular and predictable basis and the corresponding pay constitutes a significant element of the total remuneration, the pay received for that overtime work should be included in the normal remuneration due in relation to any paid annual leave.

The Court of Appeal has sought to clarify the situation in the case of East of England Ambulance Service NHS Trust v Flowers & Ors.  The employees had to work non-guaranteed overtime at the end of a shift if they had to see a task through to completion.  They also regularly agreed to work extra shifts (although did not have to). The Court decided that both this non-guaranteed and voluntary overtime should be included in the calculation of the four weeks’ paid leave provided this form of overtime is carried out on a regular and/or recurring basis and continues over a sufficient period of time.  Essentially a distinction is drawn between exceptional and unforeseeable overtime payments (which would not impact holiday pay) and broadly regular and predictable overtime arrangements (which should be included in the holiday pay calculation).

Unfortunately there is still no specific guidance on what would be considered a sufficiently regular and settled pattern of voluntary overtime to trigger the requirement to take these payments into account.  Cases will very much turn on their specific facts so we recommend employers take advice where there are complex working arrangements.  This case is also reflective of the general concern across the Courts about the wider impact of the calculation of holiday pay on workers’ rights.  Previous cases have highlighted that the method of calculating holiday pay should not deter a worker from exercising their right to take annual leave.  Lord Justice Bean in this case also reiterated concerns that if voluntary overtime did not need to be included in the calculation of holiday pay it could encourage employers to set artificially low levels of basic contractual hours and categorise the remaining working time as overtime.