The judgement of the Northern Ireland Court of Appeal (“NICA”) in Patterson v Castlereagh Borough Council marks the latest stage in the evolution of the case law on the calculation of holiday pay and the concept of “normal remuneration” for the purpose of reckoning the appropriate entitlement.
The Northern Ireland Industrial Tribunal had determined that voluntary overtime was not to be included as part of the determination of Mr Patterson’s correct entitlement under the Working Time Regulations (Northern Ireland) 1998.
This conclusion was reached on the Tribunal’s analysis of the English EAT decision in Bear Scotland and others v Fulton and others. The tribunal found that the claimants entitlement to paid annual leave should be calculated without taking into account voluntary overtime i.e. work which his employer might request Mr Patterson to do but which he was free of any contractual obligation to perform. This first instance decision was viewed by some as a rare ray of light for employers in the holiday pay saga.
By the time the case had reached the Court of Appeal, it was “…common case between the parties that the tribunal had fallen into error”. As there is no EAT in in Northern Ireland, the decision went straight to the Court of Appeal. Counsel for the employer made the concession that there was “nothing in principle” to preclude truly voluntary overtime from the calculation of holiday pay.
Whilst approving of the concession made by the employer, the NICA said this:
“Whilst we consider the concession… to have been well made, nonetheless it means that this court has been deprived of any full argument on the issue and our conclusions must therefore be read in this light and with that degree of caution attached to them. For that reason our analysis of the issues on this judgement are couched in relatively short form, recognising as we do that on another day fuller argument on this issue may transpire.”
It is, with respect to the NICA, difficult to imagine that fuller argument would have yielded any different conclusion.
After referring to British Airways plc. v Williams, Lock v British Gas and Bear Scotland itself, the NICA concluded that:
“…in principle there is no reason why voluntary overtime should not be included as a part of determination of entitlement to paid annual leave. It will be a question of fact for each tribunal to determine whether or not that voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the calculation”.
The NICA specifically referred to the opinion of the Advocate General in Williams when the case was before the CJEU :
“…the concept of ‘normal remuneration’ also has a temporal component. According to the natural meaning of the word, ‘normal’ can only refer to something which has existed over a certain period of time and can later be used as a point of reference for comparison. As the Commission and the appellants in the main proceedings rightly point out, that expression essentially implies that remuneration which in itself fluctuates at regular intervals is levelled out to an amount representing average earnings. As the parties to the proceedings rightly recognise, the determination of ‘normal remuneration’ necessarily requires a sufficiently representative reference period”
Given that the principle of inclusion of voluntary overtime has been upheld, the field of battle is likely to concentrate on whether the overtime in any particular case falls to be properly considered as part of the employees “normal” pay.
Langstaff P made specific reference to the notion of “temporality” in Bear Scotland:
“…there is a temporal component to what is normal: payment has to be made for a sufficient period of time to justify that label. In cases such as the present, however, where the pattern of work is settled, I see no difficulty in identifying “normal” pay for the purposes of EU law and accept that, where there is no such “normal” remuneration, an average taken over a reference period determined by the member state is appropriate.”
It appears that during argument, the NICA posed questions as to what might be considered to be “regular” overtime for the purpose of determining “normal remuneration”.
The case was remitted to the Tribunal to hear further evidence of the overtime actually worked within a suitable reference period and to make a determination in accordance with the principles of law set out in its judgment.
For the future, this may mean reconsideration by employers of their voluntary overtime policies. For historical claims, employers throughout Great Britain should expect employees to rely on Patterson in support of such claims.
The present ACAS guidance will also need to be reviewed in light of Patterson. It currently suggests that “ The question of voluntary overtime has not been directly considered by any recent judgments, so there is currently no definitive case law to suggest that voluntary overtime needs to be taken into account when calculating holiday pay.”
Whilst decisions of the NICA are not technically binding on Courts and Tribunals outside of Northern Ireland, the compelling reasoning in Patterson, quite apart from the status of the NICA, makes for a highly persuasive authority.
The holiday pay landscape may also change as a result of the Appeal to the EAT, launched last month, in Lock v British Gas. The employer there seeks to make a frontal attack on the EAT’s approach in Bear Scotland to interpreting domestic legislation so as to ensure conformity with EU law. Langstaff P was plainly unimpressed with the argument that our domestic legislation could not be interpreted purposively to give effect to EU law.
In England and Wales, The Deduction from Wages (Limitation) Regulations 2014 means that a two year cap will be placed on all backdated claims that are brought after 1st July 2015. It is unclear if similar legislation will be introduced in Northern Ireland.
Jacques Algazy QC is also called to the Bar of Northern Ireland