The full Judgment in the recent, high profile, case at the EAT concerning whether an employee's overtime should be paid as part of the calculation of their pay for holiday taken under the Working Time Regulations 1998 has now been released.
What did the EAT decide?
In summary, the EAT has determined that non-guaranteed overtime (that is overtime that an employer is under no obligation to offer, but an employee is obliged to work) should be included in holiday calculations.
Does this affect all of an employee's holiday entitlement?
No, whilst in the UK, employees are legally entitled to 5.6 weeks' leave, the non-guaranteed overtime only needs to be applied to the first 4 weeks' leave. This means that employers will need to start including non-guaranteed overtime when making the first 4 weeks' payments.
Will an employer be liable for any historic (back) holiday pay?
The EAT has given clear guidance that, rather than being able to reclaim holiday back to the beginning of their employment, employees should be restricted by the usual Employment Tribunal rules which means that any claim should be brought within three months.
The effect of this is that, if there is a gap of more than three months between alleged underpayment of holidays, the Employment Tribunal is not able to consider the claim. As such, if an employee has not taken any holiday in the last three months, they cannot bring a claim.
Does this affect overtime payments where the employee is not contractually required to work overtime when offered?
The EAT in this case has differentiated between overtime which an employee is obliged to work, if offered, and overtime which an employee can choose to work if they wish.
Where an employee only works overtime sporadically, and, therefore, the additional payments are not usual, it is unlikely that overtime will need to be included in holiday payments.
In contrast, where an employee is required to work overtime very regularly which, despite being classed as voluntary, the employees are not really in a position to refuse, it may become an implied term of their employment that they must work overtime and, as such, overtime would need to be included in their holiday payments.
What should you do going forward?
- Check your contracts - are your employees obliged to work overtime if it is offered?
- Check the regularity of voluntary overtime - could employees say that the overtime is regular and expected?
If your employees are not contractually required to do overtime, it would be wise, at this stage, to send a memorandum to staff, particularly those who do work overtime regularly, confirming that they are not contractually obliged to work overtime.
You should also look at overtime patterns and, where it is commercially viable, you may wish to amend either your overtime patterns or holiday patterns to minimise your potential liability for overtime payments during holiday periods.
If anybody would like us to provide examples as to how this case could apply in practice, or if anyone has any specific facts that they wish to apply this case to, let us know and we can then provide advice on an anonymised basis.
What next for this case?
It is very unlikely that this is the last we will hear of this matter. Both parties are going to appeal: the law will be in a state of uncertainty - in the meantime, we can give further advice on practical steps you can take now to minimise liability whilst protecting your legal position.