The issue of holiday pay has generated a large number of cases in recent years, on issues such as whether commission should be included in the calculation of holiday pay (Lock v British Gas) and whether certain allowances should be included (Williams v British Airways).
One of the other ongoing issues is whether overtime should be included within the calculation of holiday pay. Readers will remember the case of Bear Scotland v Fulton which decided that non-guaranteed overtime (that is, where the employer is not obliged to provide the overtime, but the worker is obliged to work it if requested) should be included. However Bear Scotland left a number of questions unanswered, one of which was whether voluntary overtime (overtime which the employee is not obliged to offer, and if offered, the employee is not obliged to work) should be included in the calculation of holiday pay.
We now have some assistance with the above question in the case of Patterson v Castlereagh Borough Council. This is a Court of Appeal case from Northern Ireland. It is therefore not binding on courts and tribunals in England and Wales, but does have persuasive force, and is, in our view, likely to be followed in England and Wales.
In Patterson v Castlereagh Borough Council the Court of Appeal overturned the decision of the Northern Ireland Industrial Tribunal and decided that “in principle there is no reason why voluntary overtime should not be included as a part of a determination of entitlement to paid annual leave”. However the Court then went on to say that it would be a question of fact in each particular case as to whether the voluntary overtime should be included, and this will depend upon whether the overtime is worked with such regularity so as to become part of the employee’s normal remuneration. If voluntary overtime is worked with such regularity then the employee will come to expect a certain level of pay, which includes that overtime. Where this is the case, if it isn’t then included within the holiday pay calculation it will act as a financial disincentive from taking holiday.
The court therefore concluded:-
“It will be a question of fact for each Tribunal to determine whether or not that voluntary overtime was normally carried out by the work and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the calculation”
The decision in Patterson v Castlereagh Borough Council, whilst not binding on courts and tribunals in England and Wales, does reflect the advice we have been providing since Bear Scotland, i.e. that voluntary overtime, which is worked on a regular basis, should be included in the calculation of holiday pay.
However even if this case is followed in England and Wales a number of questions remain outstanding, including how regular is ‘regular’, and what is the correct reference period in calculating the average remuneration, i.e. is it the 12 weeks under the Employment Rights Act or is a longer period such as 12 months more representative?
We will have to wait for further cases to determine the above issues, and so the case of Patterson v Castlereagh Borough Council certainly won’t be the last on this topic.