Annual leave: misconceptions about overtime

Jan-Pieter Vos, PhD Candidate at Erasmus University Rotterdam

Annual leave is an ever-topical issue in the ECJ case law. In case C-514/20 (Koch Personaldienstleistungen GmbH), the court held that Article 7 of Directive 2003/88 precludes a provision in a collective agreement which does not count annual leave taken as working time when determining whether an employee reached the threshold to be eligible for overtime payments.

In my view, the outcome was not surprising. The case was similar to case C-539/12 (Lock), where the ECJ held that commissions which otherwise would be earned during annual leave, should in principle be part of the holiday pay. In both Koch and Lock, the provisions at issue could deter workers from taking annual leave as if they did, they would be put on a financial disadvantage, which is why the provisions were contrary to Article 7.

What struck me in the case however, was how the referring German court (Bundesarbeitsgericht) interpreted the ECJ’s considerations about overtime in case C-385/17 (Hein). This reminded me of some recent Dutch cases, which also displayed a misconception about that case.

In Hein, the ECJ held that “given its exceptional and unforeseeable nature, remuneration received for overtime does not, in principle, form part of the normal remuneration […] However, when the obligations arising from the 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 that the worker receives for his professional activity, the pay received for that overtime work should be included in the normal remuneration […] in order that the worker may enjoy, during that leave, economic conditions which are comparable to those that he enjoys when working.” [Hein, Paragraphs 46-47]

These considerations led the Bundesarbeitsgericht – after it had noted the implications of Lock – to note that the overtime in the case at issue was incidental and therefore perhaps should not play a role in determining the threshold. The ECJ clearly stated that this was not the case, as the calculation of holiday pay in case of overtime should be distinguished from the question relating to the threshold for triggering payment of overtime premiums. [Koch, Paragraphs 43-44]

In the Netherlands, Hein has led to another discussion, whether to include overtime supplements in holiday pay. This has led courts to consider whether employees were obliged to work overtime, whether the earnings were significant and whether the overtime was predictable, as a literal interpretation of Hein suggests, with mixed outcomes.

What the German and Dutch cases have in common, is that they put too much emphasis on the ECJ’s considerations on overtime, without taking account of their context.

In the first place, we should not forget what Hein really was about. The question was whether collective agreements could compensate a lower holiday pay by including provisions which are employee-friendly.  Overtime payments were not the central issue in the case: they only came into question because the employer had asserted that one of those more favourable provisions was that overtime was included in holiday pay, which was not obliged under German law. Thus, it was an example of a ‘beneficial’ compensatory measure. This did not impress the ECJ. First, it held that those compensatory measures “cannot serve to compensate for the negative effect that a reduction in the remuneration due for annual leave has on the worker” [Hein, paragraph 43]. Only then, it also discussed those compensatory measures as a kind of obiter dictum, including the considerations on overtime. To me, the ECJ’s considerations on overtime in Hein read like “by the way: including overtime payments in holiday pay isn’t that generous, as this could well be mandatory”.

In Koch, the ECJ stressed that “any practice or omission of an employer that may potentially deter a worker from taking his or her annual leave is equally incompatible with the purpose of the right to paid annual leave”. [Koch, paragraph 32] It also makes clear that, in Hein, it addressed the question of taking into account overtime worked in the calculation of holiday pay “in order that the worker may enjoy, during that leave, economic conditions which are comparable to those that he or she enjoys when working”. [Koch, paragraph 43] This corresponds to the firmly established principle that holiday pay should in principle correspond to the normal remuneration received by the worker. [See, for example, Williams, C-155/10, paragraph 21]

Against this background, there is no convincing reason to consider the ‘overtime considerations’ in Hein to supersede the rule that “any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration […] must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave.” [Williams, paragraphs 23-24.]

Consequently, I do not believe that the ECJ’s considerations in Hein and Williams differ that much. If we apply the Williams criteria to overtime payments, incidental overtime cannot not be said to be intrinsically linked to the performance of the tasks which the worker is required to carry out. However, it could be well argued that structural overtime does. In this context, it is also important that the two categories of overtime discussed in Hein are not mutually exclusive: most notably, the judgment is silent on structural overtime which the employer may not have formally required, but nevertheless gladly accepted.

Should the worker be obliged to accept overtime work before for it can be included in holiday pay? Again, I think that this is too literal. As the purpose of holiday pay clearly is to put the worker in the same (or comparable) financial position during his annual leave compared to periods in which s/he works, structural overtime supplements should be included in holiday pay as well.

It is telling that Advocate-General Bobek (in his opinion in Hein) considers holiday pay to be a “‘mirror’ of the ‘normal’ working conditions that are intrinsic to the job in issue. With a certain degree of generalisation, it would thus seem that the remuneration for annual leave must be determined in the light of the overall remuneration actually received as consideration for the tasks effectively completed on a regular basis.” [Opinion Hein, paragraph 44.] It is also noteworthy that Advocate-General Trstenjak considered overtime supplements to be included in the broad definition of pay in Article 141(2) of the EC Treay (now Article 157(2) TFEU. [Opinion Williams, paragraph 77]

When we consider whether to include overtime payments in holiday pay, we should not lose ourselves in the two loose considerations about overtime in Hein, but get back to the basic rule: is the employee’s financial situation during annual leave comparable to the situation when he works?

Perhaps one of the Dutch cases will end up before the ECJ, so that we get a final decision for now. For now, as one thing is for sure: the right annual leave will always lead to more questions!