One of the questions that arises from last week’s decision in Bear Scotland v Fulton as regards holiday pay and overtime is whether employers can distinguish between different types of overtime.

In Tarmac Roadstone Holdings Ltd v Peacock the Court of Appeal described three categories of overtime:

  • Guaranteed (compulsory) overtime, where even if the employee is not called on to work it, the employer is liable to pay them for it.
  • Voluntary overtime, where an employee cannot be required to work it, and the employer does not have to provide it.
  • A “halfway house”, where the employee is obliged to work overtime if required, but the employer is not obliged to provide overtime or pay in lieu.

Guaranteed compulsory overtime is covered in “normal working hours” and therefore is to be included in holiday pay in respect of the full 5.6 weeks’ leave (this was settled some years ago in a case called Bamsey). The Bear Scotland decision clarifies that “non-guaranteed” overtime (described as the “halfway house” above) should also be included but what about voluntary overtime where there is no obligation on either side? This is, after all the most common form of overtime.

The EAT didn’t reach any definitive conclusion because it wasn’t relevant to the case they were asked to decide. However, it is likely that tribunals will interpret voluntary overtime as forming part of normal remuneration if a settled pattern has developed over a sufficient period of time to justify the label of “normal” pay. This was the finding in Neal v Freightliner which had formed part of the appeal in Bear Scotland until the parties settled the case. In Neal the worker was not contractually obliged to work overtime if asked by the employer. The fact that Mr Neal might have volunteered to perform tasks outside his contractual hours did not mean that his performance was no longer “intrinsically linked” to his job .

Some commentators have been suggesting that this “voluntary overtime” is an escape route to having to add between 3 and 5% to the payroll (according to an EEF survey) following the decision in Bear Scotland. For the reasons outlined above we would urge caution in any employer relying on this unless their employees genuinely rarely work overtime and overtime is few and far between.