Decision Increases Risk Of Higher Costs For Businesses

The on-going saga of how UK businesses calculate holiday pay for their employees has taken a fresh turn following a decision in the Northern Ireland Court of Appeal.

The case of Patterson v Castlereagh Borough Council focuses on the issue of whether voluntary overtime should not be included in holiday pay calculations.

Voluntary overtime is generally agreed to reflect overtime which the employer is not obliged to provide and which the employee can work or reject.

The original industrial tribunal found that purely voluntary overtime should not be included because it was specifically excluded by the Employment Appeal Tribunal in the joined cases of Bear Scotland.  Although the case was referred to the NI Court of Appeal, lawyers acting for both the employees and employer had already agreed that the ET had mistakenly interpreted the decision in Bear Scotland.

The NI Court of Appeal agreed and found that there is no reason in principle why voluntary overtime should not be included in holiday pay.  However, it remitted the claim back to the Tribunal to determine whether or not Mr Patterson’s claim would succeed.

Expert Opinion

“This is an important case in the long running issue of calculating holiday pay and although decisions in Northern Ireland are not binding in England & Wales, it is certain to provide a steer on the outcome of future cases here.

"However, although the principle appears to have been established, this does not mean that every hour of voluntary overtime worked will have to be reflected in holiday pay. This is because employees are entitled to ‘normal pay’ during a period of holiday. There is no statutory definition of what amounts to ‘normal pay’ and Tribunals will continue to hear arguments about whether overtime (of whatever nature) has become part of an employee’s normal pay.

"In some cases this will be easy to determine and the employee will be able to point to a regular (in terms of it being done at regular times of the year) or frequent (in terms of it being done often) when considering a pattern of worked overtime. In others, it will be less obvious and we would expect ad hoc overtime to be excluded. These questions will also raise issues of what is the correct reference period and we anticipate that some workers who work irregular overtime will seek to argue that all overtime worked should be averaged over a 12 month period.

"Even if voluntary overtime has been regularly worked, it is still open to employers to limit payment to the first 20 days of leave taken in accordance with the principle established in earlier cases.

"What businesses really need is clarity and unfortunately, this case only goes so far in providing this and there are many questions that are still open to debate."

Glenn Hayes - Partner & National Head of Employment Law