ABG Employment Newsletter – September 2013

Overtime to be taken into account when calculating statutory holiday pay

The Working Time Regulations 1998 states that statutory holiday pay should be calculated using the ‘week’s pay’ provisions of the Employment Rights Act 1996. Under these provisions pay for voluntary overtime is disregarded and therefore the statutory holiday pay is calculated on an employee’s basic salary. However, in the case of Williams and Others v British Airways plc 2011 the European Court of Justice held that a worker on holiday is entitled to not just his basic salary but also to remuneration which is ‘intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment’.

Since the case of Williams there has been an argument that the UK law does not accord with the European Directive. In a recent case the Employment Tribunal considered this point and decided that the Employment Rights Act 1996 should be interpreted purposively to give effect to the Directive and therefore voluntary overtime pay must be taken into account when calculating statutory holiday pay if the overtime is ‘intrinsically linked to performing tasks the worker is required to carry out under the employment contract’.

The employee’s contract provided for a 35 hour week made up of 7 hour shifts. However, it stated that ‘he may be required to work overtime when necessary’. The employee in fact never worked 7 hour shifts. Rather, he worked shifts of 8.5 or 9 hours in accordance with the rosters and occasionally worked shifts of up to 12 hours. The employer calculated the employee’s statutory holiday pay based on his 35 hour basic salary claiming that the overtime he worked was voluntary. The employee brought a claim under the Working Time Regulations and the deduction from wages provision of the Employment Rights Act.

The Employment Tribunal upheld the employee’s claim. The judge pointed out that the employee was performing tasks he was required to do under his contract during the overtime periods. The fact that he might have volunteered to perform those tasks outside his contracted hours did not mean that his performance was ‘intrinsically linked’ for the purposes of the test set out in Williams.

This decision is significant but it is not binding. However, it is only a matter of time before this point is considered by the EAT and the higher courts. In the meantime, employers may want to consider whether they should be taking overtime into account when calculating statutory holiday pay.

Dismissal not always a ‘reasonable response’ to a finding of gross misconduct

The dismissal of an employee will be unfair unless:

  • the employer can show that the reason for dismissal was a one of the five potentially fair reasons set out in the Employment Rights Act 1996; and
  • the tribunal finds that the employer acted reasonably in treating that reason as a sufficient reason for dismissal.

One of the potentially fair grounds for dismissal under the Employment Rights Act is conduct. If an employer establishes that an employee’s conduct was the reason for the dismissal the tribunal must then decide whether the decision to dismiss fell within the range of reasonable responses that a reasonable employer in those circumstances and in that business might have adopted.

In a recent case the EAT has held that the Employment Tribunal’s decision that gross misconduct would always fall within the range of reasonable responses was incorrect.

The employee was believed to have been seeing private patients whilst off sick from her job as a haematologist in an NHS hospital. The disciplinary panel found that this constituted gross misconduct and as a result the employee was dismissed. The employee brought a claim for unfair dismissal. The Employment Tribunal dismissed the claim, concluding that ‘once gross misconduct is found, dismissal must always fall within the range of reasonable responses’ and that the dismissal was fair. The employee appealed.

The EAT allowed the appeal and remitted the case to the same Employment Tribunal. The EAT noted that the jump from a finding of gross misconduct to the proposition that dismissal must then inevitably fall within the range of reasonable responses gave no room for considering whether, though the misconduct was gross and dismissal almost inevitable, mitigating factors might mean that dismissal was not reasonable. The Employment Tribunal should have considered the employee’s long service, previously unblemished record and the consequences of being dismissed from the NHS when deciding if the dismissal was fair. As the Employment Tribunal had not done so, the case was remitted for consideration of those points.

This highlights that where there is a finding of gross misconduct it is important to ensure that mitigating factors relevant to each individual and the circumstances are taken into account when deciding on an appropriate sanction

TUPE service change provisions to be amended not repealed

The proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 were set out in our February 2013 Employment Newsletter. The government has now published its response to the consultation on the proposed changes. The most significant developments are:

  • The current provisions relating to service provision changes will remain. However, the legislation will clarify that, for there to be a service provision change, the activities carried on after the change must be “fundamentally or essentially the same” as those carried on before it.
  • The obligation to provide employee liability information will remain, with a longer timeframe.
  • Allowing changes in the location of the workforce following a transfer to fall within the scope of ‘economic, technical or organisational reasons entailing changes in the workforce’, to prevent genuine place of work redundancies from being automatically unfair.


The wording of the legislation has not yet been finalised but the legislation is likely to come into force in January 2014.

New employee shareholder status

Legislation that came into force on 1st September 2013 created a new employee shareholder status. A brief overview of the new status is set out below.

Under the new legislation an employee will receive at least £2,000 worth of shares and will in return give up some of their employment rights. An employee shareholder does not have the following rights:

  • the right not to be unfairly dismissed (this does not include automatic unfair dismissals or dismissals in breach of the Equality Act 2010);
  • the right to request flexible working;
  • the right to a statutory redundancy payment;
  • the right to request time off to study or for training; and
  • the employee shareholder must give 16 weeks’ notice to the employer of their intention to return to work during the maternity leave, adoption leave or additional paternity leave period.

The employee can receive up £2,000 worth of shares without having to pay income tax or national insurance and and there is a capital gains tax exemption on the disposal of the shares provided they were worth no more than £50,000 on acquisition.

The employer must issue the employee shareholders with a written statement of the particulars of the status of an employee shareholder.


The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Christopher Gigg 
[email protected] 
+44 (0)115 934 3310

Kathryn Meir
[email protected]
+44 (0)115 934 3308