2022/38 Overtime and other allowances to be excluded from holiday pay (IR)

Karen Hennessy

Karen Hennessy is a solicitor at Mason Hayes & Curran LLP.

2022/38 Overtime and other allowances to be excluded from holiday pay (IR)

A recent Irish Labour Court judgment has found that it was correct for overtime and certain other allowances to be excluded from the calculation of payment for annual leave, and that the timeframe for the backdating of the claim was that set down in Irish legislation.

Summary

Introduction

The case at hand concerned an appeal to the Labour Court of a decision of the Workplace Relations Commission (WRC) relating to a complaint under the Organisation of Working Time Act 1997 (OWTA) that the complainant’s employer, Carlow County Council (the respondent), failed to correctly calculate his payments for the purposes of holiday pay for the duration of his employment. The complainant commenced employment for the respondent in 1999 as a driver and plant operator.The following issues were considered at the WRC, and by the Labour Court on appeal:

whether overtime should be included in the calculation for annual leave payments;
whether overtime should be included in the calculation for public holiday payments;
whether the payment of certain allowances should be included in the calculation for annual leave and public holiday payments;
if any of these payments do apply, should they be included both for statutory and contractual leave entitlements; and
how far back should any compensation be retrospectively applied?

Legal background

The OWTA was enacted in Ireland to give effect to what is now Directive 2003/88/EC (the Directive). Article 7 of the Directive provides, in relation to annual leave, that Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave as laid down by national legislation and/or practice.Regulations made under the OWTA include, in the calculation of payment for annual leave, the normal rate of pay plus regular bonuses and allowances, but they specifically exclude any pay for overtime: see S.I. No. 475 of 1997. These Regulations provide for a similar calculation in respect of the ten public holidays.Compensation under the OWTA is capped at two years’ remuneration. The Workplace Relations Act 2015 provides that the WRC shall not entertain a complaint if it has been brought after the period of six months from the date of the contravention to which the complaint relates. This period, however, can be extended up to a further six months if reasonable cause can be shown for the delay.The ECJ has considered the legal issues raised in this complaint in a number of judgments. So, in Case C-539/12, Lock – v – British Gas Trading Ltd, the ECJ stated that the general rule with regard to remuneration comprising several components is that, although the structure of the ordinary remuneration of a worker is determined by the provisions and practices governed by the law of the Member States, that structure cannot affect a worker’s right to enjoy, during his or her period of rest and relaxation, economic conditions which are comparable to those relating to their employment.The ECJ went on to say that the existence of an intrinsic link between the various components making up the total remuneration of the worker, and the performance of the tasks he or she is required to carry out under the contract of employment, would seem to be a decisive criterion for including those various components in the remuneration payable to the worker during their paid annual leave. The various allowances a worker may claim during paid annual leave must therefore not only be directly linked to the performance of the tasks he or she is required to carry out under their contract of employment, but also have a certain degree of permanence. Consequently, the ECJ ruled in Case C-385/17, Hein – v – Albert Holzkamm GmbH, that regular and rostered overtime should be included in the calculation.In Case C-214/16, King – v – Sash Window Workshop Ltd, the ECJ considered the position in relation to the carry over of a worker’s paid annual leave entitlement. It was held that Article 7 of the Directive must be interpreted as precluding national provisions or practices that prevent a worker from carrying over and, where appropriate, accumulating, until termination of their employment relationship, paid annual leave rights not exercised in respect of several consecutive reference periods because the employer refused to remunerate that leave.

Facts and WRC decision

There was an agreed overtime arrangement in place for the complainant which included a payment for daily ‘regular and rostered’ overtime. The complainant also received an ‘eating-on-site allowance’ plus an ‘on-call allowance’ for the six weeks of the year that he was required to be on call.Somewhat surprisingly, the complainant and respondent were in agreement before the WRC that the regular rostered overtime should have been taken into account when determining the complainant’s payment for annual leave. The WRC concurred with this, as it was found that rostered overtime was a contractual requirement, had a degree of permanence and there was an intrinsic link between it and the tasks performed by the complainant. Thus, it met the tests previously set down by the ECJ. It was also determined that the on-call payments were intrinsically linked with the contract of employment and had a degree of permanence, as well as the eating-on-site payments. It was determined that this applied for the 20 statutory annual leave days. However, for the additional five contractual annual leave days entitlement, the WRC found that it did not have jurisdiction to make a finding, as this was a contractual term as agreed between the parties, not a statutory right.Separately, the WRC found that public holidays were not guaranteed as a social right under the Directive, and therefore national provisions should prevail in relation to how payment for them was calculated. As a result, no declaration could be made by the WRC as to the inclusion of payments for overtime for public holidays, as it would not be consistent with the national provisions.Further, following the jurisprudence of the ECJ in cases such as Sash Window, the WRC determined that the complainant’s rights in relation to the backdating of his claim could not be limited to a specific timeframe, due to the omission or failure of the employer. The WRC therefore found that these underpayments should be calculated from the commencement of the complainant’s employment (i.e. 21.5 years).

Decision of the Labour Court

The Labour Court found that the Directive left it to national legislation to determine the conditions of entitlement to, and granting of, an employee’s paid annual leave, including the determination of the basis upon which payment is calculated and the level of that payment. The Labour Court determined that the relevant OWTA regulations were unambiguous in relation to overtime not being a component of this calculation. The Labour Court cited its previous decision in MCM Security Ltd – v – Power (DWT0895) for authority that ‘payment in respect of overtime is not reckonable in the calculation of pay for either annual leave and public holidays’, and found that the complainant’s claim in relation to the inclusion of overtime in calculating annual leave entitlements could not succeed.The Labour Court also found that the eating-on-site allowance was not treated as pay for taxation purposes and the on-call allowance was only payable for on-call duty outside core hours. The Court found that neither of these allowances were therefore comprehended by the relevant regulations.The Court also found that when dealing with a claim under the OWTA in relation to annual leave, in which there was an entitlement to four weeks annual leave, it had no jurisdiction in relation to the further five days of contractual leave provided for in the complainant’s employment contract.In relation to the relevant statutory time limits, the Labour Court took the view that, because the complainant’s claim was in respect of the payment for annual leave – rather than the entitlement to annual leave – the correct period to be considered was the six month period as provided for under the Workplace Relations Act, rather than the 21 years that he had been in employment with the respondent.The Labour Court, in dismissing the complaints, found the respondent had properly calculated the complainant’s annual leave and public holiday entitlements and the claim that his leave calculations should include regular and rostered overtime and allowances was not made out.

Commentary

This Labour Court decision appears to reinforce the authority of domestic legislation in relation to the computation of payment for annual leave and public holidays. There are, however, a number of difficulties with the decision.First, the decision in MCM Security was delivered in 2008, which predates the ECJ decision in Hein.Secondly, the Court’s attention was not drawn to the UK Court of Appeal decision in Smith – v – Pimlico Plumbers Ltd [2022] EWCA Civ 70, in which judgment was given in February 2022, some months before the hearing in the Labour Court. In this case, it was held that, although domestic legislation could provide for the loss of the right to paid annual leave at the end of each leave year, to lose it the worker must actually have had the opportunity to exercise that right. The court added that a worker could only lose the right if the employer could meet the burden of showing that it had ‘specifically and transparently’ given the worker the opportunity to take paid annual leave, encouraged the worker to take that leave and informed the worker that the right would be lost at the end of the leave year. If the employer could not meet that burden, the right did not lapse but carried over and accumulated until termination of the contract.The reasoning in the Pimlico Plumbers case is fully supported by the subsequent ECJ decision in Case C-120/21, LB – v – TO, delivered on 22 September 2022. Here, the worker, upon termination of her employment in 2017, sought from the employer payment of an allowance in lieu of accumulated annual leave untaken since 2013. The ECJ agreed with the Advocate General’s opinion that the worker’s entitlement did not expire at the end of the three-year limitation period prescribed by the German Civil Code because the employer ‘had failed to encourage her to take her leave and failed to inform her accurately and in good time that, if she did not take it, that leave would be lost at the end of the year’.Thirdly, the Court’s attention was not drawn to the ECJ decision in Case C-514/20, DS – v – Koch, delivered in January 2022, which reaffirmed the reasoning in Lock and Hein that a worker was entitled to enjoy, during his or her annual leave, economic conditions which were comparable to those which he or she received when working.The Court’s decision as regards additional annual leave and public holidays is consistent with ECJ decisions such as Case C-609/17, TSN and Case C-588/18, FETICO.

Comment from other jurisdiction

Germany (Andre Schüttauf and Julia Matthäus, Luther Rechtsanwaltsgesellschaft mbH): The decision of the Irish Labour Court is contrary to current European case law. For questions regarding the inclusion of individual wage components in vacation pay, the ECJ established clear criteria in 2018 (Case C-385/17, Hein), according to which overtime must be included in vacation pay if it is provided for in the service schedule, is directly related to the activity owed under the employment contract and has a minimum degree of permanence. Accordingly – and contrary to the legal findings of the Irish Labour Court based on the OWTA – overtime is not included in vacation pay only if it is not based on the above criteria.The second decision of the Labour Court is also contrary to current European case law. The Labour Court applied the exclusion period for the settlement of vacation entitlements enshrined in the OWTA regulation. On 22 September 2022, the ECJ ruled in Case C-120/21 LB – v – TO that vacation entitlements can only extinguish if the employer fulfills its obligation to provide information.In Germany, the Federal Labour Court (Bundesarbeitsgericht, ‘BAG’) endeavours to follow and initiate ECJ case law on relevant legal issues. Hence, the ECJ decision in LB – v – TO was initiated by the BAG in order to clarify whether the entitlement to paid annual leave acquired by an employee for a reference period shall become time-barred within three years according to national law, if the employer has not actually enabled the employee to exercise such entitlement. The ECJ ruled that the national regulations on the regular statute of limitations were not applicable in this case. The BAG will now have to decide on the appeal of the defendant, taking into account the decision of the ECJ in LB – v – TO.However, this is unlikely to be the end of the debate on vacation entitlements in German – and European – case law.

Subject: Paid Leave Parties: Eamonn Coughlan – v – Carlow County Council Court: Labour Court Date: 21 April 2022 Case numbers: DWT2228 and DWT2229 / ADJ-00032324, CA-00042933 Internet publications: https://www.workplacerelations.ie/en/cases/2022/july/dwt2228.html; https://www.workplacerelations.ie/en/cases/2022/july/dwt2229.html

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