For many workers, holiday pay is straightforward – a normal day’s pay for a day’s holiday. However, the position can be more complicated where hours vary or where employees receive additional payments such as overtime or commission. The recent case of Neal v Freightliner  shows that Tribunals may require overtime to be included, even where it is voluntary.
To explain the background to the Neal decision, in 2012 the European Court of Justice (ECJ) and the UK Supreme Court dealt with the case of Williams and others v British Airways , a case involving holiday pay for pilots and whether they were entitled to flight allowances and other supplements while taking annual leave. The case dealt with regulations specific to the aviation sector, but it was confirmed by the ECJ that the position would be the same under the Working Time Regulations.
In Williams, the ECJ said that the pilots should receive their ‘normal remuneration’ during annual leave, and that this would include pay which is ‘intrinsically linked’ to the performance of certain tasks (but not pay designed to cover the pilots’ costs). When the case came back to the Supreme Court, it decided that it may be unlawful for British Airways to pay only basic pay, but the matter was sent back to the Employment Tribunal to calculate what the pilots’ normal remuneration would involve. We have not yet heard whether the Tribunal hearing has taken place, or whether agreement has been reached by the parties in the meantime.
Neal was the first reported case dealing with the holiday pay point following Williams.
Mr Neal worked for Freightliner doing five 7-hour shifts per week. His contract stated that he may have to work overtime when necessary. He was notified of his shifts by a rota system, and regularly worked up to 9 hours each day, sometimes more. He also received enhanced pay when working more than 7 hours. He claimed that his holiday pay should reflect his actual pay rather than just his basic salary. Freightliner argued that overtime was voluntary and that holiday pay should be basic pay only. They also argued that if holiday pay did reflect overtime, it could encourage manipulation by employees (such as deliberately doing lots of overtime in the weeks leading up to a holiday, so as to increase holiday pay).
The Tribunal considered the Williams case and looked at whether the overtime was ‘intrinsically linked’ to Mr Neal’s role. They found that it was and that it was irrelevant whether overtime was voluntary or not. In relation to Freightliner’s argument about manipulating overtime, the Tribunal said that in practice, overtime is something controlled by employers.
If this case were followed by other courts, it could have very significant implications indeed. However, it is very important to note that Neal was decided at Tribunal level only and is therefore not binding on other courts (it is only at Employment Appeal Tribunal and above that cases become binding).
Unfortunately, as Mr Neal has accepted a settlement it does not seem that this case will be tested by the higher courts. Nevertheless, it is important that employers are aware of the risk that paid overtime (whether it is compulsory or not) may need to be considered when calculating holiday pay – this would need to be based on the worker’s average pay in the 12 weeks before the holiday. If you are in any doubt about whether this could affect your organisation, it would be a good idea to take advice, as no one wants to be part of the next expensive test case!
If you would like advice on holiday pay, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).