In the second part of our series on contract management pitfalls, we look at the risks and opportunities presented by payment mechanisms in construction contracts.
The Employment Appeals Tribunal (“EAT”) held in Flowers v East of England Ambulance Trust that “normal” remuneration included voluntary overtime if it was paid over a sufficient period.
It has been established in recent cases that employees are entitled to be paid “normal” remuneration for at least four weeks of their annual leave entitlement (which is the amount they are entitled to under the European Working Time Directive) and that “normal” remuneration can include payments for overtime.
There are, however, still questions around what “normal” remuneration for holiday pay, and additional pay count includes. Cases have established that it can include commission and various types of overtime, bonuses and allowances, but many are still confused about voluntary overtime. The main question, in this case, was whether “normal” remuneration includes voluntary overtime.
Various employees work for the East of England Ambulance Trust. Sometimes the employees work overtime, which could be non-guaranteed or voluntary.
Non-guaranteed overtime is essentially where a shift overruns because an employee has an obligation to complete a task (such as caring for a patient until an ambulance arrived). Voluntary overtime is where someone volunteers to work additional shifts.
The workers’ employment contracts had a clause that set out that pay would be calculated based on the amount the individual would have received had they been at work (based on the previous three months).
The Employment Tribunal (ET) initially held that holiday pay should take into account non-guaranteed overtime, but not voluntary overtime. However, after the ET’s decision, the EAT decided in Dudley Metropolitan Borough Council v Willetts that voluntary overtime came within the concept of “normal” remuneration where it extends for a sufficient period on a regular and/or recurring basis – see our previous ebriefing. The employees, therefore, appealed (and the employer cross-appealed) the ET’s decision to the EAT.
The EAT overturned the ET’s decision and held that voluntary overtime could constitute “normal” remuneration, therefore following the approach taken in Dudley Metropolitan Borough Council v Willetts. The case has been remitted to the ET to determine what holiday pay is due.
Although this case focussed on wording in an NHS contract, so may be distinguished on this basis in future cases, it is likely to be of wider application as it follows the approach taken in Dudley Metropolitan Borough Council v Willetts.
Any employers who pay overtime, whether guaranteed, non-guaranteed, compulsory or voluntary, need to consider whether they are paying appropriate amounts of holiday pay taking into account this additional pay (for at least four weeks of annual leave entitlement).
It is important to note, however, not every occasion of paid overtime will trigger an increased holiday payment. Dudley Metropolitan Borough Council v Willetts established that this would need to be where the overtime payments extend for a sufficient period on a regular and/or recurring basis. Unfortunately, in this case, the EAT did not clarify what a sufficient period would be and did not give any more detail on what a regular or recurring basis is.
How to calculate this additional pay is still, therefore, unclear. In this case, the contract of employment expressly referred to considering payments during a three-month reference period, and therefore it is likely that all payments will count. However, most contracts will not specify any period or which payments do count, and so the questions will remain – what counts as “normal” remuneration and whether the period considered should be a 12-week period (as referred to in the Working Time Regulations) or another period.
It is also worth noting that we are also awaiting the outcome of the Government’s consultation following the Taylor Review as to whether the reference period in the Working Time Regulations should increase to 52 weeks.
For more information
The decision in this case confirms that voluntary overtime that is paid over a sufficient period should be taken into account when calculating holiday pay. For more information on calculating holiday leave and/or holiday pay, please get in touch with your usual contact in our Employment Team or speak to Hazel Robbins.
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