In August 2018, the Employment Appeal Tribunal (EAT) confirmed that voluntary overtime paid over a sufficient period of time on a regular or recurring basis should be taken into account when calculating pay due to an employee during their annual leave. The Trust appealed this decision to the Court of Appeal.
This followed a previous judgment that genuinely voluntary overtime should form part of a worker's 'normal remuneration' for the purpose of calculating holiday pay. This has been the position in the UK since that case was determined.
However, the CJEU has since produced a judgment (Hein v Albert Holzkamm GmbH & Co) in which it commented that, due to the "exceptional and unforeseeable" nature of overtime, overtime remuneration does not in principle form part of normal remuneration to be claimed during paid annual leave. This appeared to potentially contradict the accepted position in both the UK and the EU.
The Court of Appeal was concerned to address the CJEU's recent comments, commenting that:
"The CJEU is notorious for making pronouncements resembling those of the oracle at Delphi, but even by their oracular standards paragraph 46 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…it is one thing to be oracular, it is another to be self-contradictory…"
The Court of Appeal concluded that the CJEU was merely drawing a distinction between exceptional and unforeseeable overtime payments on the one hand and regular and foreseeable overtime payments on the other. It was not performing a "handbrake turn" on its previous position that voluntary overtime payments should be taken into consideration in calculating holiday pay when they were sufficiently regular and recurring that they should be viewed as forming part of the employee's "normal remuneration".
The Court of Appeal agreed with the EAT's reasoning and therefore dismissed the appeal. It confirmed that the previously accepted position has not changed. It also noted that in this particular case, the NHS contractual terms known as 'Agenda for Change' should be construed as providing a contractual obligation that both non-guaranteed and voluntary overtime must be included in holiday.
NHS employers are contractually required to take voluntary overtime into consideration for the purpose of calculating holiday pay, but non-NHS employers should also take heed.
UK employers should be including overtime payments that are regular and recur over a reasonable period of time, whether voluntary or not, in employees' holiday pay. The issue is determining whether overtime payments are sufficiently regular to be included.
The Agenda for Change contains a contractual three-month reference period for working out the average overtime paid in order to calculate the value of holiday pay. Employers without a contractual reference period will have to determine their own reference period. In many cases, the 12-week statutory reference period for other purposes in the Employment Rights Act 1996 may be appropriate. However, where there are significant spikes and troughs in employees' overtime, a longer period may be more appropriate.