Overtime on holiday

Following a number of European decisions about what elements must be included in a worker’s holiday pay, the Employment Appeal Tribunal (EAT) has held in the conjoined case of Bear Scotland Ltd v Fulton and anor; Hertel (UK) Ltd v Wood and ors; Amec Group Ltd v Law and ors that non-guaranteed overtime pay must be included if it forms part of normal remuneration.

Unite the Union instructed Thompsons to act on behalf of its members who were employed by Hertel and Amec.

Basic facts

Mr Wood, Mr Law and 14 other Unite members worked under the terms of the National Agreement for the Engineering Construction Industry (NAECI). Clause 7.1 provided that their basic working week consisted of 38 hours; clause 7.4 stipulated that there was an obligation on employees to work overtime; clause 10.3 stated that payment for holidays was to be calculated on the basis of 38 hours per week and that overtime hours and overtime pay would not be taken into account.

The Unite members started work on a project which was governed by a supplementary project agreement (SPA) in addition to the terms specified in the NAECI. Clause 10.2 of the SPA stated that a working pattern would be introduced with an obligation to work overtime in accordance with NAECI clause 7.4. Clause 10.4 of the SPA set out the proposed working pattern for the site, which consisted of 44 hours, including 6 hours’ overtime. In addition clauses 10.5 and 10.6 of the SPA stated that overtime would be required during the project, although it was not guaranteed and did not form part of normal working hours, nor “any part of the calculations on holiday pay entitlement”.

Mr Wood, Mr Law and the other Unite members brought claims that the failure to include overtime in their holiday pay constituted unlawful deductions from their wages. The tribunal agreed and the employers appealed.

Relevant law

The right to a paid holiday is provided for by the Working Time Regulations (WTR) 1998 which implement the Working Time Directive. Article 7 of the directive states that every worker is entitled to “paid annual leave of at least four weeks in accordance with the conditions of entitlement to, and granting of such leave laid down by national legislation and/or practice”.

Regulation 16(1) of the WTR states that workers are entitled to be paid for annual leave at the rate of a week’s pay in respect of each week of leave. Sections 223(3) and 234 of the Employment Rights Act exclude certain overtime payments from the definition of a week’s pay.

EAT decision

Following the decisions of the Court of Justice of the European Union in the cases of Williams and ors v British Airways (LELR 238) and Lock v British Gas (LELR 377), the EAT held that under article 7, employers had to pay normal pay in respect of annual leave. As the workers in this case had to work overtime (and in fact regularly did so), overtime constituted normal remuneration which had to be paid in respect of annual leave. In order to implement the directive properly, regulation 16 therefore had to be read in such a way that the overtime payments were not excluded.

On a linked point, the EAT allowed the workers’ cross-appeal that taxable elements of payments made for time they spent travelling were also part of their normal pay (not expenses), and therefore also had to be paid in respect of annual leave.

In HM Revenue and Customs v Stringer (LELR 126) the House of Lords held that a claim for holiday pay could be brought as a claim for unlawful deductions from wages. In a new development of the law, the EAT in this case held that workers cannot make claims for arrears of holiday pay if more than three months have passed between deductions.