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Voluntary overtime and holiday pay: a ray of light for employers?

By Daniel Dyal

If a worker undertakes voluntary overtime, should that be taken into account when calculating their holiday pay? That is one of the most topical questions for employment lawyers. In Patterson v Castlereagh Borough Council , an Industrial Tribunal in Northern Ireland has answered the question in the negative, holding that voluntary overtime may be disregarded when calculating holiday pay.

Voluntary overtime, in this context, means overtime which the employer is not obliged to offer and which the worker is not obliged to accept if it is offered. Holiday pay, in this context, means pay for holiday taken pursuant to regulation 13 of the Working Time Regulations 1998.

 At first blush, Patterson seems like good news for employers; a decision which stems the tide. On analysis, however, the dam is made of paper. The reasons the Industrial Tribunal gave for their decision, with respect, do not bear scrutiny.

Facts

Mr Patterson had two contracts: The first was a contract of employment as an Assistant Plant Engineer. Overtime under this contract was entirely voluntary. Mr Patterson was not obliged to work overtime if offered any; nor was the employer obliged to offer it. However, as a matter of fact, from time to time, Mr Patterson did work overtime pursuant to this contract. The employer ignored that overtime when calculating his holiday pay.

The second contract was a separate and distinct casual contract with the same employer pursuant to which, at the relevant times, Mr Patterson carried out occasional relief work as a Recreational Assistant. This work was wholly distinct from his work as Assistant Plant Engineer. The relief work contract was casual in that there was never any requirement for the employer to offer Mr Patterson work; nor was the any obligation on Mr Patterson to accept work if offered it.

Decision of the Industrial Tribunal

The Industrial Tribunal held that, although Mr Patterson had worked voluntary overtime as an Assistant Plant Engineer, the sums earned for that voluntary overtime did not need to be reckoned into the calculation of his holiday pay. This was, apparently, on the basis that that in Bear Scotland & Others v Fulton & Others the EAT decided that voluntary overtime, unlike non-guaranteed overtime (that is, overtime which the employer is not obliged to offer but which the employee is obliged to work if asked to) should not be brought into the reckoning of holiday pay.

The Industrial Tribunal further held that holiday accrued and was payable in relation to the other work undertaken pursuant to the casual contract. This aspect of the decision seems uncontroversial: the casual work was not overtime at all. It was simply casual work pursuant to a casual contract. It was also work in respect of which there were no normal working hours and to which, therefore, s.224 Employment Rights Act 1996 (or strictly, the identical equivalent Northern Ireland provisions) applied. It therefore fell, or should have fallen, outside of the scope of the current holiday pay controversies because even under domestic law normal remuneration is payable for holiday pay for workers with no “normal working hours”.

Comment

 With great respect, the decision of the Industrial Tribunal in relation to voluntary overtime is premised upon a misreading of Bear Scotland.

 It is true that in Bear Scotland the EAT held that non-guaranteed overtime (at least when there is a settled pattern of it) should count in the calculation of holiday pay. It is also true that the EAT carefully defined non-guaranteed overtime and distinguished it from other types of overtime such as voluntary overtime.

However, the EAT did not hold that voluntary overtime should be excluded.. On the contrary, it left that issue at large. The reason it left that issue at large is because it did not fall to be decided.

In Bear Scotland, the EAT heard three conjoined appeals. It had been due to hear four, but the fourth case, Neal v Freightliner,was compromised before the hearing. In Neal, the employers had argued that the employees’ overtime need not be included in the calculation of holiday pay because it was voluntary and thus not “required under the contract”. The employer lost that argument at first instance. Given that the employer’s appeal was compromised, the matter never came before the EAT in Bear Scotland and the EAT did not decide the point. Rather, it carefully avoided it since it did not arise on the facts of the remaining three conjoined cases.

 Thus, whilst it may fairly be said that there are some clues in Bear Scotland as to what the position is in relation to voluntary overtime, it can be said with certainty that Bear Scotland did not decide the position.

The clues do not necessarily all point in the same direction, but perhaps the biggest clue is this one: In Neal v Freightliner, having concluded that voluntary overtime should count in the reckoning of holiday pay, the Employment Tribunal went on to conclude that article 7 of the Working Time Directive could be given effect in domestic law by adding the following underlined words to regulation 16(3)(d) of the Working Time Directive 1998:

'as if reference to sections 227 and 228 did not apply and, in the case of the entitlement under regulation 13, sections 223(3) and 234 do not apply'

Sound familiar? Students of the Bear Scotland decision will recognise the underlined words. In Bear Scotland, having decided that non-guaranteed overtime should be included when calculating holiday pay, and having decided that domestic law could give effect to this through the Marleasing principle, the EAT had to decide what form of words to read into domestic law. Of the various candidates, the one it chose was none other than those suggested in Neil v Freightliner.

 In conclusion, though, the answer to the question that this blog began with remains at large.

 

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