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England beats Germany on penalties in new holiday pay decision (UK)

Flowers –v- East of England Ambulance Services NHS Trust this month concerned a claim by a number of workers in the Trust ambulance service that their holiday pay should include an allowance in respect of overtime, both non-guaranteed and voluntary. For these purposes, voluntary overtime was work which the employee was under no obligation to do, and non-guaranteed was work which he did have to do but the employer was under no obligation to provide.

Having reviewed the prior cases on the topic, the Employment Tribunal concluded that an allowance for lost non-guaranteed overtime should be included in the holiday pay, but not for the loss of the voluntary overtime which the employee might have been up for if he had not been on leave. On appeal the EAT relied on its own decision in Dudley MBC –v- Willetts [here] to say that voluntary overtime should be included in holiday pay if it was paid with “sufficient regularity” that it counted as “normal pay”. In addition, the EAT found that regardless of the statutory position, the Trust’s contracts of employment gave the claimants that entitlement anyway.

The Court of Appeal disposed relatively rapidly of the Trust’s appeal on the meaning of its contracts. That was enough to decide the case in favour of the employees. However, the Court nonetheless took the additional step of looking at the statutory argument too, since employers need to know, it said, whether the decision in Willetts was correct. There followed a rehearsal by the Court of Appeal of all the grand old names in the holiday pay cast, all of which said basically the same thing, i.e. that the Working Time Directive (and hence the UK Working Time Regulations) required that an employee should be paid enough in respect of his holidays that he did not lose out by taking them. It was not enough that he was paid short of that but not to so great an extent that he chose not to take his leave (so finally nailing employers’ traditional but desperate argument that the employee cannot have been deterred from taking his holidays because he actually took it). All the cases used similar terminology to get to the same point – there should be an allowance for overtime in holiday pay where the overtime is sufficiently regular, normal, settled, predictable, and so on. The principle is clearly established, though none of those cases yet give any clarity to the beleaguered payroll assistant trying to put it into practice.

Then boldly on to that stage strode a new boy, a German ECJ case from December 2018, Hein –v- Albert Holzkamm GmbH. This declared out of the blue that overtime, any overtime, would not be part of the employee’s normal pay because of “its exceptional and unforeseeable nature“. Cue judicial gasps of amazement as the ECJ drove a bus through many years of its own juris prudence, especially as Hein wasn’t actually about overtime in the first place.

That shock reverberated through the EU’s employment law until, well, the next paragraph in the same decision, where normal service was resumed by reference to “normal pay” including overtime worked “on a broadly regular and predictable basis“. However, the ECJ then added another condition, that the overtime pay should “constitute a significant element of the total remuneration that the worker receives”, the implication from that being that if it were regular but essentially peripheral to the employee’s salary, no allowance would need to be made for it in his holiday pay.

The Court of Appeal checked its translation from the German of the original decision but still could not explain this “handbrake turn“. Confident on its home turf and on the clear understanding that the UK would shortly fall out of the ECJ’s jurisdiction, the Court of Appeal put the boot in, by judicial standards at least: “The [ECJ] is notorious for making pronouncements resembling those of the Oracle at Delphi, but even by their oracular standards [this] is hard to understand…. to say as a sweeping general proposition that the nature of overtime is that it is exceptional and unforeseeable would be nonsense. Moreover, it is one thing to be oracular: it is another to be self-contradictory.” On that basis the Court of Appeal upheld the claim of Mr Flowers and his colleagues that their holiday pay should include voluntary overtime.

However, although the “exceptional and unforeseeable” argument was clearly killed off so far as future UK decisions are concerned, no comment was made about the second condition, that the amount of overtime be a “significant element of total remuneration“. A possible get-out for employers therefore remains. However, two practical points on that one: first, the sum being small in absolute or relative terms does not stop it being normal. Second, if it is so small as to be insignificant, the cost and administrative nuisance of trying to rely on that decision is very unlikely to be worth the risk of its therefore still amounting to a breach of the holiday pay rules.

© Copyright 2019 Squire Patton Boggs (US) LLP

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David Whincup Employment Attorney Squire Patton Boggs Law Firm
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Following ten years at a Magic Circle firm, David has been Head of our London Employment practice since 1994. His expertise gained from twenty-five years as a specialist Employment Law practitioner covers a wide variety of employment-related issues, including in particular individual and team recruitment issues, policy and contract drafting, disciplinary and grievance procedures, individual and collective redundancies, the defence of employee discrimination and dismissal claims and other litigation, whistleblowing, employee health, data protection and matters surrounding...

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