Mr Flowers and his colleagues were employed by the Trust in various roles relating to the provision of ambulance services. Their employment was governed by AfC.

Section 13.9 of AfC provides:

Pay during annual leave will include regularly paid supplements, including any recruitment and retention premia, payments for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received had he/she 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 claimants argued that the calculation of their holiday pay should include both non-guaranteed overtime and voluntary overtime, under section 13.9 of AfC and pursuant to the Working Time Directive (WTD). Following the 2015 decision in Bear Scotland Ltd v Fulton, the Trust admitted the WTD claim in respect of non-guaranteed overtime.

The Employment Tribunal upheld the claimants’ contractual claims for non-guaranteed overtime but dismissed their statutory and contractual claims for voluntary overtime. Both parties appealed those parts of the decision that went against them.

EAT decision

The EAT allowed the claimants’ appeal on each basis.

In relation to their WTD claim, the EAT found that voluntary overtime which is part of a regular and settled pattern of overtime worked by the individual should be taken into account for the purposes of calculating pay in respect of statutory holiday. It had been hoped that guidance would be given on what is meant by the term “regular” but the EAT did not deal with this point and the claimants’ WTD claims have been remitted to the Employment Tribunal to be assessed on a case-by-case basis.

In relation to their contractual claims, the EAT found that the purpose of section 13.9 AfC was to calculate holiday pay on the basis of what the employee would in fact have been paid if at work. The EAT commented that there was no justification within AfC for excluding overtime from 13.9 or for distinguishing between non-guaranteed and voluntary overtime, and both should be treated as “pay”. The EAT confirmed that the calculation of holiday pay should be based on the pay received in the previous three month period (or such other period as is identified locally) and that the claimants had a contractual right to have all overtime included in the calculation.  The claimants’ contractual claims for non-guaranteed and voluntary overtime have been remitted to the Employment Tribunal for assessment.

What to take away

It had been hoped that the EAT would provide further clarity for employers with this decision, but there are still a number of questions that remain unanswered in respect of statutory holiday pay. There is as yet no clarity on what is meant by a “regular and settled pattern of overtime”, and this is likely to lead to further litigation.

However, the finding in relation to the contractual position under AfC is more definitive and will be of concern to NHS employers. The EAT does not state that 13.9 requires overtime to be worked regularly or as part of a settled pattern in order for it to be considered pay.  It would, therefore, appear that any voluntary overtime worked in the three months preceding a holiday period should be included in the calculation of holiday pay, even if it is wholly exceptional, which is clearly a significant development.

The EAT does not limit its decision to the calculation of pay in respect of statutory holiday of the claimants and it is likely, in our view, that the claimants will argue that the 13.9 finding should apply to all holiday, including additional contractual holiday under AfC.  It is generally accepted that claims for underpayment of statutory holiday pay should be brought in the Employment Tribunal either as unlawful deductions from wages claims or working time claims (either under the Working Time Regulations or the Working Time Directive) where there is a three month limitation period. However, where employment is ongoing, employees could bring claims in respect of contractual holiday under AfC in excess of statutory holiday in the civil courts as a breach of contract claim where the limitation period is six years rather than three months.  A breach of contract claim in respect of contractual holiday (as distinct from an unlawful deductions claim) could only be brought in the Employment Tribunal after the termination of employment.

The Trust has requested permission to appeal the decision to the Court of Appeal and so there may be further developments in this case.  There are a number of issues which have not been addressed by the EAT and at this point we do not recommend taking action to amend policies regarding the calculation of holiday pay.  Where employers are challenged in light of this judgment, we recommend dealing with each challenge on a case by case basis but in the meantime it would be prudent for NHS employers to assess the financial implications of including all overtime for all holiday, statutory and contractual, moving forward.

For further information on how this issue might affect your organisation please contact Nicola Green, Chloe Edwards or Andrew Uttley.