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Employment A-Z

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Patterson v Castlereagh Borough Council NIIT/1793/13

Calculation of Holiday Pay – voluntary overtime.

Northern Ireland Court of Appeal rules that voluntary overtime is capable of counting towards pay for the purposes of calculating holiday pay. Rulings from Northern Ireland Court rulings are not binding on the employment courts of England and Wales. However, this verdict is indicative of the move in case law regarding what constitutes pay for the purpose of calculating holiday pay and so is worth keeping an eye on.

In Patterson v Castlereagh Borough Council, legal representatives for the employer conceded that there is nothing in principle stating that purely voluntary overtime pay should not be included in calculations of pay for the purposes of working out the holiday pay rate for an employee. All parties stressed that the treatment of voluntary overtime in holiday pay calculations is of much wider public significance.

Mr Patterson initially carried out occasional engineering work for Castlereagh Borough Council as a casual worker. He became a full-time employee in 2003.

Although his contract of employment was silent on overtime, it was clear that the employer was not obliged to offer overtime, nor was Mr Patterson required to undertake overtime when it was offered. In 2013, P complained that his overtime was not reflected in the employer's calculation of his holiday pay. He brought a claim for unlawful deductions from wages under art.45 of the Employment Rights (Northern Ireland) Order 1996 (SI1996/1919) and reg.16 of the Working Time Regulations (Northern Ireland) 1998 (SR1998/386). The equivalent similarly worded legislation in England, Wales and Scotland is s.13 of the Employment Rights Act 1996 and reg.16 of the Working Time Regulations 1998 (SI 1998/1833).

The legislation implements the Working Time Directive (2003/88/EC).

The industrial tribunal considered the decision in Bear Scotland and stressed that the EAT decision applied only to obligatory non-guaranteed overtime. The tribunal recapped on the key principle set out in European Court of Justice decisions (ECJ) that any aspect of pay that is "intrinsically linked" to the performance of the tasks that the worker is required to carry out and in respect of which a monetary amount is provided has to be included in the calculation of the worker's total remuneration. The tribunal also highlighted that the EAT said in Bear Scotland that pay that is "normally received" must be included in holiday pay. The EAT said that there is a temporal component to what is normal: payment has to be made for a sufficient period of time to justify the label "normal".

The industrial tribunal applied Bear Scotland and concluded that, since Mr Patterson's overtime was "voluntary overtime" and not obligatory "non-guaranteed overtime", the employer was not required to include the overtime in the calculation of his paid annual leave.

The industrial tribunal therefore rejected Mr Patterson's claim for unlawful deductions from wages. At the appeal hearing against the tribunal judgement, the Northern Ireland Court of Appeal judges expressed surprise at the tribunal's assumption that purely voluntary overtime does not need to be included in holiday pay.

The Court of Appeal allowed the appeal. However, it urged that its judgement should be read with a degree of caution, in light of the employer's concession regarding "nothing in principle" to prevent purely voluntary overtime from being included. This meant the court did not have the benefit of hearing full arguments from both sides on the issue. Having reviewed Bear Scotland, Williams v British Airways and Lock v British Gas, they were satisfied that there is no reason in principle why voluntary overtime should not be included in holiday pay calculations. However, to trigger inclusion the worker's overtime must be "normally" carried out, and be an "appropriately permanent feature" of the worker's remuneration.

The case has been resubmitted to the tribunal to be reheard.