Court of Appeal gives judgment in Flowers case on overtime and holiday pay11/06/19
In July 2018 we reported on the decision of the Employment Appeal Tribunal (EAT) in Flowers and others v East of England Ambulance Trust. The EAT ruled that the claimants were entitled to have both non-guaranteed and voluntary overtime taken into account for the purposes of calculating their statutory and contractual holiday pay. Learn more about the background to this case here.
The EAT gave the Trust permission to appeal the decision to the Court of Appeal (CA), in relation to the issue of voluntary overtime. The appeal was against the EAT’s decision in relation to the calculation of statutory holiday pay under the Working Time Directive (WTD) and, of particular interest to NHS employers, the calculation of contractual holiday pay under section 13.9 of Agenda for Change.
Section 13.9 AfC provides:
“Pay during annual leave will include regularly paid supplements, including any recruitment and retention premia, payment for work outside normal hours and high costs area supplements. Pay is calculated on the basis of what the individual would have received if he or she had been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed.”
The CA dismissed the Trust’s argument that, as overtime is not a regularly paid supplement, it should not be included in the calculation of holiday pay. It also rejected the suggestion that the fact that overtime was not expressly referred to in section 13.9 meant that it should be excluded from the calculation. The CA pointed out that to do so would result in annual leave payments falling well short of what an individual “would have received if he or she had been at work”, which is specifically required by 13.9
The CA therefore dismissed the Trust’s appeal and upheld the EAT’s decision.
The CA had been specifically asked to consider the question of whether there was any basis for distinguishing between voluntary and non-guaranteed overtime for the purpose of section 13.9, and accordingly it made a particular finding on this point. However, whilst the judgment centres on a consideration of non-guaranteed versus voluntary overtime, its effect is much wider. Under a proper interpretation of section 13.9, any payments which have been made to the employee over the previous three months should be factored into the calculation of holiday pay.
Given that the claimants’ contractual claim had already been upheld, the CA was not required to make a finding in respect of the statutory claim under the WTD. However, the CA noted that this part of the claim was of wider interest beyond the NHS workforce, and it was useful to have a decision on the point at CA level.
Following a detailed analysis of previous case law, the CA found that where overtime payments are broadly regular and predictable, as opposed to exceptional and unforeseeable, then they should be taken into account for the purposes of calculating holiday pay. The CA pointed out that, if this were incorrect, particularly given current workforce trends, employers could offer workers zero-hours contracts or contracts with minimal working hours, labelling all other work undertaken pursuant to the contract as “voluntary overtime” and therefore outside the scope of a holiday pay calculation.
What to take away
This decision is the latest in a long line of cases considering the question of overtime and holiday pay. Whilst there is still an element of uncertainty regarding a claim under the WTD (what does “broadly regular and predictable” mean in practice?) there is now emerging a much clearer definition of the test(s) to apply.
More significantly for employers across the NHS, the contractual position in relation to AfC is also now starting to become clearer, particularly in terms of what must be included when calculating holiday pay under section 13.9.
We understand that the Trust intends to seek leave to appeal to the Supreme Court on both the contractual and WTD issues. This could lead to a further period of uncertainty until the legal process has concluded.
Employers in the NHS who have been awaiting the CA decision will need to keep their position under review pending the outcome of any appeal, including how to respond to any further queries from employees and trades unions that will undoubtedly follow this latest decision. As part of this review process, and as previously advised, employers will also need to consider the extent of any potential financial liability arising out of the decision, as this could be significant.
For further information on how this issue might affect your organisation or to discuss the options available, please contact Andrew Rowland, Nicola Green, Andrew Uttley or Bridget Prosser.