'Landmark judgment' isn't about overtime at all

On Tuesday 4 November, in a flurry of huge media attention, the Employment Appeals Tribunal (EAT) handed down its decision on overtime and holiday pay in Bear Scotland Ltd & others v Fulton and others. 

Holiday pay now needs to take overtime pay into account, with restrictions on the ability to bring claims for holiday pay from previous years. Leave to appeal to the Court of Appeal has been granted, with a likely later outing to the Supreme Court and/or the European Court of Justice (CJEU).

This is not the first time the issue of holiday pay has come before the courts. In May this year, the CJEU gave its decision on commission and holiday pay in Locke v British Gas. The court said holiday pay needs to take commission into account. However, it did not explain 

how to do that, and sent the case back to the Employment Tribunal, where it will be heard in February 2015, followed no doubt by further appeals.

That case followed another CJEU decision a few years ago in British Airways plc v Williams, which referred to holiday pay matching ‘normal remuneration’ and including elements of pay ‘linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment’.

The media hype surrounding the EAT decision led us to believe it was a landmark judgment, yet when you look deeper, it is arguably not a decision about overtime at all.

Types of overtime

In each case, the ‘overtime’ in question, with a few insignificant exceptions, was offered every week and taken every week. Although it was called overtime, a regular and standard number of hours were carried out, leading to remuneration.

In the EAT decision, the judge emphasised the words ‘required to carry out’ from the British Airways decision. This suggests that even the CJEU might allow employers to exclude genuinely voluntary overtime when calculating holiday pay. 

In assessing what is ‘normal remuneration’, he said “payment has to be made for a sufficient period of time to justify that label”, which could exclude occasional or irregular overtime. 

It is therefore still open to many employers to claim the case does not apply to them because the overtime they offer is occasional, inconsistent and/or voluntary. In other words, it is genuine overtime. 

If the decision does cover irregular overtime, it leads to the question of how holiday pay is calculated to accommodate it. There is a 12-week period prior to the start of the holiday that is used for averaging out pay when workers do not have normal working hours. Although this averaging out does not currently apply to workers who have basic hours plus overtime, it seems likely it will.

That means every time someone takes holiday, even just for a day, the pay will depend on how much overtime has been taken recently.  

EU holiday

We also have the question of which holidays are affected by this. The EU sets a minimum of four weeks’ paid leave per year (EU holiday). The Working Time Regulations 1998 (WTR) raise the bar to 5.6 weeks and many employers offer even more. The EAT made it clear that the obligation to include overtime in holiday pay only applies to EU holiday. For the rest, employers can stick with the long-established principle of just paying basic pay. 

This begs the question of which weeks attract the higher pay and which attract just basic pay. The judge avoided a clear decision on this, but he suggested sensibly that the first four weeks taken in any holiday year are the EU holiday. But if an employer is paying any four weeks’ holiday at a rate that includes overtime, it will be difficult for a worker to claim their rights are not being observed. It would then be open to an employer to pick the weeks preceded by the least overtime. SJ

Adam Lambert is an employment partner at Clyde & Co