In Neal v Freightliner Ltd an Employment Tribunal has held that overtime pay must be included when calculating holiday pay in respect of the minimum four weeks' leave required by the EU Working Time Directive.
Statutory holiday pay is calculated under the complex "week's pay" provisions of the Employment Rights Act 1996, which do not require voluntary overtime and shift allowances to be taken into account. However, in Williams and others v British Airways plc, the European Court of Justice ("ECJ") held that workers should be paid their normal remuneration during their four weeks' statutory holiday. As well as basic salary, this should include remuneration which is "intrinsically linked" to the performance of tasks required to be carried out under the contract of employment.
Mr Neal's contract required him to work for 35 hours per week in seven hour shifts and to work overtime where necessary. In reality, Mr Neal worked shifts of 8.5 or 9 hours, sometimes longer. He received a premium for time worked over his contractual seven hour shifts. When calculating his statutory holiday pay, Mr Neal's employer used his 35 hour basic salary, without taking account of any overtime. Mr Neal argued in the Employment Tribunal that the holiday pay for his four weeks' minimum statutory leave should be calculated with reference to his actual pay for all the hours he worked including weekend work, night work and overtime. The company argued that overtime work was voluntary, and that Mr Neal did not have to work longer than his contractual hours if he did not wish to do so.
Applying the ECJ's test in Williams to Mr Neal's case, the Employment Tribunal concluded that whilst he was working overtime, he was performing tasks that he was required to do under his contract, and which were "intrinsically linked" to that contract. His holiday pay calculation should therefore have included his overtime pay and shift allowances.
Since this case is an Employment Tribunal decision, it is not binding on other Tribunals. However, the employer has appealed to the EAT. If the decision is upheld, there is likely to be a significant increase in similar claims for holiday pay, including claims for historic underpayments. In any event, employers should be considering now whether their holiday pay calculations are consistent with this case and the decision in Williams v British Airways plc. This may be a difficult process, for example, where overtime varies from one week to the next. It is also unclear whether the same reasoning would apply to the additional 1.6 weeks' leave provided by the UK Working Time Regulations.
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