On 27 September 2024, the Dutch Supreme Court issued a significant ruling regarding the question whether or not overtime pay must be taken into account in the calculation of holiday pay. This ruling builds on European case law and provides new insight into the interpretation of Article 7:639 of the Dutch Civil Code and the EU Working Time Directive. Read more about the case and its practical implications below.
Case background
The employee in this case, a crane operator, has been employed by Mammoet Nederland BV since 1991. His employment contract is governed by the collective labour agreement for the professional goods transport sector. For many years, he has worked more than 40 hours per week, including weekends, with overtime varying by year and pay period. Although the employee was compensated for his overtime, this pay was not used in the calculation of his holiday pay.
In February 2018, the employee submitted a formal demand for holiday pay dating back to 2013, arguing that the employer had unfairly excluded overtime from the calculation. The value of a holiday day was a point of contention in the collective bargaining negotiations, but eventually, the parties agreed that certain structural allowances should be included in the calculation of holiday pay. As a result, the collective agreement was amended.
The employer then offered employees a lump-sum payment for the period 2014-2018 to settle any claims for underpaid holiday pay. The employee in question rejected this offer and continued to claim unpaid holiday pay for overtime and allowances between 2013 and 2018.
At the core of this case was the question: should overtime pay be included in the calculation of holiday pay?
Which wage components count towards holiday pay?
In the Netherlands, the general rule is that an employee is entitled to full wages during their holidays (Article 7:639 of the Dutch Civil Code). This right is further developed in European legislation, such as Article 7 of the Working Time Directive. The rationale behind this is that employees should not suffer financial loss during their holidays compared to their regular working periods.
However, in addition to overtime, there are several wage components that can cause confusion in practice. Other wage elements, such as irregular hours bonuses, shift allowances, and bonuses, can also cause uncertainty. The Court of Justice of the European Union (CJEU) has clarified in previous rulings (e.g., Hein/Holzkamm) that wage components intrinsically linked to the employee’s regular work must be included in holiday pay. Nonetheless, there are exceptions, such as profit-sharing schemes, pension entitlements, and year-end bonuses, which do not count.
Supreme Court ruling
In its September 2024 ruling, the Dutch Supreme Court addressed whether overtime pay should be factored into holiday pay calculations, building on previous CJEU case law. The employer in this case argued, based on the German version of the Hein/Holzkamm judgment, that overtime pay should only count if the employer could compel the employee to work overtime. The Supreme Court rejected this interpretation.
The Supreme Court clarified that it is not necessary for the employer to have unilateral control over overtime. What matters is whether the overtime is a regular part of the employee’s normal duties, as stipulated in the employment contract. If overtime pay constitutes a substantial part of the employee’s overall wages, it must be included in the calculation of holiday pay.
This ruling aligns with the principle that employees should not experience a financial disparity between periods of work and holidays. It is irrelevant whether the employee works overtime voluntarily or as a contractual obligation.
You can read the Supreme Court’s ruling here.
Practical implications
This ruling provides clarity for employers and employees dealing with structural overtime. If overtime is a regular feature of an employee’s normal duties and the compensation forms a significant portion of their total wages, it must be included in holiday pay calculations.
For employers, it is crucial to review the wage components employees receive and determine which should be included in holiday pay. Occasional or irregular overtime need not be factored in, but regular overtime and its associated compensation should be included if it is a substantial part of total wages.
Do you want to ensure you're calculating holiday pay correctly, or do you have other questions in employment or corporate law? Feel free to contact the lawyers from SPEE advocaten & mediation.