The Northern Ireland Court of Appeal has today added its small contribution to the debate around the inclusion of overtime earnings in holiday pay. The direction it has taken in Patterson –v- Castlereagh Borough Council is logical up to a point, but of terrifyingly little practical assistance to employers looking for some, indeed any, reliable steer on what to do in these cases.
A couple of points to make first:-
(i) decisions of the Northern Ireland Court of Appeal are not strictly binding in England and Wales, but will often be persuasive;
(ii) the case concerned voluntary overtime, i.e. overtime which the employer has no obligation to offer, nor the employee any obligation to perform. This took it a step onwards from Bear Scotland, as that case dealt with non-guaranteed overtime – extra work which the employer is not obliged to offer but which the employee is obliged to perform if it did.
The NICA reiterated the basic principle behind all the holiday pay cases, commission and overtime – that a worker should not have any disincentive placed in his path that may lead to his not taking his holidays – and moved from there to the superficially very simple proposition that if that worker “comes to expect a certain level of pay as normal then he should receive that during his holiday period”.
Whether that “normal” level of pay includes guaranteed, non-guaranteed or voluntary overtime is irrelevant, said the NICA. The issue is the amount of his normal pay, not the detail of its composition.
If that is right then at least one aspect of the holiday pay debate is greatly simplified for employers. You can look simply at overall earnings and need not get embroiled in ascertaining the precise contractual nature of each bit of overtime worked. But (in holiday cases there is always a but) we are left still with the overriding question – how do you calculate an employee’s “normal level of pay”? The NICA suggested that this was strictly a decision of fact to be made by the employer (and prospectively then the Employment Tribunal) in relation to each individual. It referred to a spectrum of overtime arrangements running from someone who “has to, and does, work a certain number of hours overtime” to a person who works “occasional voluntary overtime“. The former’s overtime should be included and the latter’s probably not. “In between”, it said with the jauntiness which comes with knowing that it won’t actually have to make any decisions, “lie the myriad patterns of working some overtime, whether or not in accordance with a contractual obligation to work, but not routinely involving the same amount of overtime actually worked”. That is of course the area where the debate has been all along.
To assist, the NICA suggested that assessing “normal earnings” from a variable level implied the use of some form of reference period to produce an average. However, an averaging process would include account of the occasional overtime which the Court had just suggested could be excluded. Moreover, it could produce a different number from that which the employee actually expected, being on the Court’s own account the basic test of disincentive from taking holidays.
In the end the NICA sent the case back to the Tribunal to assess the overtime worked “within a suitable reference period”. This decision therefore leaves unaddressed both the length of the reference period and the question of where the employer should draw the line in assessing normality. On a strict reading, some of its employees may have their overtime included in holiday pay while others doing exactly the same job on the same contractual terms might not. Add to that the probability that employees could drift between those two populations more or less at will, and it is little wonder that the Court described its own “normal pay” approach as “smacking more of theory than reality in most cases”.
However, if this decision does no more than reduce the need to consider different treatments of different sorts of overtime in the calculation of holiday pay, then it will still be a small step forwards for employers.