In the recent case of Hein v Holzkamm GmbH and Co KG, the European Court of Justice (“ECJ”) indicated that voluntary overtime should not be factored into holiday pay. The ECJ stated ‘given its exceptional and unforeseeable nature, remuneration received for overtime does not, in principle, form part of remuneration’. This decision now casts doubt over two significant Employment Appeal Tribunal (“EAT”) decisions which had indicated otherwise.
The case involved a German concrete worker who in 2015 was on short-term work for a total of 26 weeks. In Germany, the collective agreement for the construction industry entitles workers to 30 days’ paid leave in each holiday year. The pay for annual leave was calculated with reference to gross annual pay with some slight adjustments. In 2015, his gross annual pay was reduced due to the periods of no work and this meant that when he took his 2015 allowance, his holiday pay was less than it would have been if there had been no short-term working.
Article 7(1) of the EU Working Time Directive stipulates workers must receive their ‘normal remuneration’ for periods of annual leave. The worker sought to challenge that German law did not comply with this. He succeeded with the ECJ holding entitlement to paid leave must, in principle, be calculated by reference to the period of actual work completed under the employment contract.
Domestic law in the Employment Right Act 1996 already means periods of no work cannot be allowed to reduce the level of holiday pay. Where a worker in the UK has no ‘normal working hours’ an average over the last 12 weeks must be used to calculate holiday pay. On 6 April 2020 this will be extended to 52 weeks (or if the worker has been employed less than 52 weeks the average will be over the number of weeks employed).
The ECJ in this case commented that overtime does not form part of normal remuneration required to be given under Article 7(1) unless the employee is contractually obliged to work overtime ‘on a broadly regular and predictable basis’, which constitutes a significant element of what that worker receives. The ECJ’s comment that voluntary overtime should not be taken into account when calculating holiday pay conflicts with the two recent EAT cases cited below.
- In Dudley Metropolitan Borough Council v Willets and ors the EAT held purely voluntary overtime and standby payments should have been included in the calculation of holiday pay in so far as they were paid with sufficient regularity to count as ‘normal remuneration’. This was even though there was no obligation on the workers to accept the overtime or on-call rota.
- The same approach was taken in Flowers and ors v East of England Ambulance where the EAT stated voluntary overtime could be taken into account if it was worked on a sufficiently regular and settled basis. Again, there was no contractual obligation on the employees to do the overtime.
How does this case affect holiday pay calculations?
The ECJ’s decision carries more authority in interpreting European legislation than domestic EAT decisions. This now means domestic case law in this area must be treated with an element of caution whilst we await further ECJ decisions to give further clarify on this area. The case of Flowers and ors mentioned above has been appealed and is due to be heard next month (May 2019) in the Court of Appeal. It will be interesting to see whether domestic courts may be swayed by the recent ECJ decision.
For more information or advice on calculating holiday pay, please contact Warren Moores in our Employment Law & HR team on 0161 475 1225.