The idea that reductions in employee remuneration during periods of annual leave might act as a deterrent to workers taking holiday has once again been considered by the European Court of Justice (ECJ) in Hein v Albert Holzkamm GmbH & Co (C-385/17). The ECJ held that contractual overtime, where regular and predictable, should be included in holiday pay. However, it is not entirely clear whether the ECJ considered that the same or similar rules should apply to voluntary overtime.

This leaves open the question of whether voluntary overtime should be included in holiday pay calculations if it is regular and predictable, as the Employment Appeal Tribunal (EAT) held in Flowers and others v East of England Ambulance Trust, or whether the ECJ intended, by virtue of its omission to refer to voluntary overtime in Hein, for voluntary overtime to be excluded entirely from holiday pay calculations (UKEAT/0235/17/JOJ).

As is apparent from Hein, while certain steps have been made towards clarifying which elements of overtime constitute “normal remuneration”, there is still some way to go (see box “Normal remuneration”).

The main thrust of the dispute in Hein was not, in fact, to do with overtime but short-time working. Mr Hein worked as a concrete worker for a German construction company, Holzkamm, on a short-time working basis. In 2015, he physically worked a total of 26 weeks. For the remaining periods without actual work, he continued to be employed by Holzkamm on significantly reduced pay. Under a collective agreement governing holiday within the construction industry, Mr Hein was entitled to, and took, 30 days of annual leave.

The periods of short-time working and, consequently, his reduced pay, were factored into the holiday pay calculations. Therefore, Mr Hein was paid a far lower gross hourly wage for his holiday than he was accustomed to on his working days. The ECJ was asked to determine whether this is lawful under the Working Time Directive (2003/88/EC).

The ECJ held that, where a worker has actually worked within a reference period, they are entitled to a statutory minimum of four weeks of annual leave pro-rated for the number of days actually worked. For example, as Mr Hein worked for 26 weeks, he was entitled to two weeks of paid annual leave. The ECJ also indicated that pay for this period should be maintained at the level at which it is usually paid out to the worker. It is, therefore, contrary to EU law to reduce normal remuneration as a result of short-time working.

The ECJ also considered whether, and how, overtime should be factored into holiday pay. As a starting point, it said that overtime should not be factored into a worker’s normal remuneration, given its exceptional and unforeseeable nature. However, the ECJ went on to say that when the obligations arising from an employment contract require the worker to work overtime on a broadly regular and predictable basis, and the corresponding pay constitutes a significant element of the total remuneration received for the worker’s professional activity, the overtime should be included in holiday pay calculations. The ECJ indicated that it would not impose a retrospective time limit on the effect of its ruling, leaving employers open to potentially all historic claims.

While Hein clarifies the position as regards contractual overtime under EU law, the same cannot be said for regular and predictable voluntary overtime. The ECJ’s omission to consider or comment on whether predictable and regular voluntary overtime is to be considered normal remuneration might encourage employers to draw conclusions that it need not be included in their calculations. However, this would sit at odds with English law and the recent EAT decision in Flowers. From the point of view of EU law, further clarity may be required from the ECJ on this point.

Hein sits comfortably alongside the EAT’s decision in Bear Scotland Ltd and others v Fulton and others (UKEATS/0047/13; see News brief “Calculating holiday pay: overtime is overdue”). The EAT held that, where there is an intrinsic link between the work performed by the worker and their remuneration, that remuneration will be considered normal for the purposes of calculating holiday pay. Therefore, where a worker is contractually obliged to perform overtime, whether or not the employer is contractually obliged to provide it (that is, non-guaranteed overtime), this element of worker pay must be included in holiday pay. However, just like the ECJ, the EAT left open the question of voluntary overtime.

The EAT did later address this question in Dudley Metropolitan Borough Council v Willetts and others (UKEAT/0334/16). Here, it decided that normal remuneration does not necessarily mean only contractual remuneration. If the intrinsic link between pay and the work carried out is sufficiently regular and settled, it should count towards holiday pay. In Willetts, as the claimant employees often performed overtime in addition to their contractual overtime obligations, a pattern of sufficient regularity had emerged to such an extent that this element of their pay satisfied the definition of normal remuneration.

The inclusion of both non-guaranteed and voluntary overtime in holiday pay was then revisited in Flowers. Here, the claimant employees were paid both types of overtime but their holiday pay failed to account for either. The EAT held that non-guaranteed overtime should be accounted for under the employees’ contractual claim by reference to the contractual terms and conditions which stipulated that an employee would receive the pay that they were usually entitled to at work as holiday pay (in effect, normal remuneration). However, it rejected the employment tribunal’s assertion that voluntary overtime should not be accounted for because it was not a contractual right. Instead, following Willetts (which was handed down after the tribunal’s decision), it deemed that, where voluntary overtime is sufficient and regular, it should be factored into holiday pay.

Rather unsurprisingly, questions about whether to include voluntary overtime in holiday pay will depend on fact and degree in each individual case, at least for now, given that this point of law has been referred to the Court of Appeal, to be heard by October 2019 (Flowers). It will be interesting to see whether the Court of Appeal will consider Hein and, in particular, whether it will consider the ECJ’s silence about whether voluntary overtime should be included in holiday pay to be indicative that it should not be. Conversely, it might agree with the national courts that regular and predictable payments, whether deriving from contractual obligations or voluntary work, should be included in holiday pay calculations.

With the ever-increasing uncertainty over Brexit, it remains to be seen whether the Court of Appeal will even feel the need to pay attention to the ECJ or, indeed, whether it will refer the question to the ECJ to obtain the certainty that, no doubt, both employers and workers are looking for. Either way, it may be some time before the dust settles on this issue.