EAT rules that voluntary overtime should be included in holiday pay

The Employment Appeal Tribunal (EAT) has dismissed an appeal by Dudley Metropolitan Borough Council, ruling that voluntary overtime should be taken into account when calculating holiday pay.

The case, Dudley Metropolitan Borough Council v Mr G. Willetts and others, involves 56 council employees who work as electricians, plumbers, roofers, storemen, operations officers, and quick response operatives. These employees are contracted to work for 37 hours a week, and many also have a contractual right to work two to four hours of overtime. In addition to these normal working hours, the employees also perform additional duties on a voluntary basis, including out-of-hours standby shifts, attending call-outs, and voluntary overtime. The regularity of these shifts and when they were performed is decided entirely by the employees.

The claimants contended that that pay received for these voluntary additional duties, as well as travel time linked to this work, should be taken into consideration for the calculation of holiday pay to ensure that employees are not financially disadvantaged by taking leave.

According to trade union Unite, which the claimants are members of, the earnings for these voluntary duties could equate to approximately £6,000 a year on top of the employees’ basic salaries. Although the affected staff members would be paid this while working, the underpayment in holiday pay is estimated by Unite to be between £350 and £1,500 a year depending on the amount of voluntary work undertaken.

The case was original taken to the Employment Tribunal (ET), which ruled in favour of the claimants. Dudley Metropolitan Borough Council appealed the decision to bring the case to the EAT. The EAT agreed with the ET, and dismissed the appeal.

The EAT found that under the European Union’s Working Time Directive, there is no distinction between contractually required work and tasks that are performed voluntarily under other special or separate arrangements because levels of normal remuneration have to be maintained when calculating holiday pay in relation to the guaranteed four weeks of annual leave provided under EU law. The EAT also upheld that where voluntary shifts, standby and call-out payments form part of normal pay, they should be included in holiday pay calculations so that there is no financial disadvantage that may deter employees from taking leave.

Mrs Justice Simler DBE, who ruled on the case, said: “It seems to me that once the claimants commenced working a shift of voluntary overtime or a period of standby duty or callout, they were performing tasks required of them under their contracts of employment even if there was also a separate agreement or arrangement. The payments made were all directly linked to tasks they were required to perform under their contracts of employment and, once those shifts or standby periods began, they were in no different position from an employee who is required by his contract to work overtime or be on standby or attend callouts.”

Councillor Steve Clark, cabinet member for finance and legal services at Dudley Metropolitan Borough Council, said: “The council is considering the contents of the Employment Appeal Tribunal (EAT) judgment received yesterday afternoon. After reviewing this, the authority will decide on the next steps in relation to this case. Unfortunately, until then, we cannot comment any further at this stage.”

Howard Beckett, assistant general secretary for legal services at Unite, said: “[This] landmark victory further clarifies the law on holiday pay and is of major significance to workers across the UK. It means employers must now include all earnings, including payments for voluntary duties and overtime, in calculating holiday pay.

“Unite will be liaising with Dudley Council and its legal team over reaching a satisfactory settlement for our members. In the meantime we would urge other employers who have been fleecing workers of their holiday pay to get their house in order or face legal action.”