Employment tribunal confirms that holiday pay should include commission
In the latest development in holiday pay, the Leicester employment tribunal has ruled that holiday pay should include commission. Lock and ors v British Gas Trading Ltd and anor. does not come as much of a surprise given that the Court of Justice of the European Union (CJEU) ruled in May 2014 that employees’ holiday pay should include commission and other elements of variable pay which is “intrinsically linked to their contract of employment”, including overtime, shift allowances and offshore allowances.
It had been hoped that the employment tribunal’s decision would shed light on the many unanswered questions following the CJEU’s decision and that of the Employment Appeals Tribunal in Bear Scotland Ltd v Fulton (see our previous update 'Holiday pay ruling: what does it mean?').
Unfortunately the Lock case does not address these unanswered questions and is very much confined to the facts of the case. Of course any employment tribunal decision carries very limited weight, since decisions are not binding on other tribunals, but it would have been helpful if guidance on reference periods could have been provided by this decision.
The case concerned Mr Lock, a salesman employed by British Gas. As well as his basic salary, Mr Lock was entitled to commission based on the number of sales he made. This was paid in arrears and accounted for around 60% of his overall earnings. Mr Lock claimed that as he could not earn commission whilst on holiday, he would lose income if he took any annual leave. The CJEU agreed that this was in breach of the Working Time Directive.
The key question facing the employment tribunal was whether the Working Time Regulations 1998 (WTR) could be interpreted so as to take into account the CJEU’s decision that holiday pay should include commission. If it could not, claims could not be brought against private sector employers unless the Government changed the law.
The tribunal ruled that the Regulations could be read so as to reflect the CJEU’s decision, and in order to achieve this result it added a new Regulation 16(3)(e), which reads:
‘...as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of s.221.’
This means that employers must take into account the commission earned by workers when calculating their holiday pay. The decision only applies to the four weeks’ holiday pay a worker is entitled to under EU law, and any claims must be brought within three months of the last underpayment of holiday pay.
Employers should also be aware that as of 1st July 2015, back-dated claims for underpayment of holiday pay will be limited to two years (see our previous update 'Holiday pay – 2 year backstop on claims').
The employment judge made it clear that his findings related solely to workers who earn commission. This means that we are still uncertain as to whether other forms of variable pay, such as voluntary overtime or bonuses, should be included in holiday pay.
The employment judge also said that there would be a further hearing to determine:
- The correct reference period for calculating holiday pay of workers who earn commission. Although the tribunal’s proposed amendment to the WTR suggests that this should be 12 weeks, it refused to answer this point conclusively and deferred its decision to a future hearing.
- Whether commission needs to be taken into account in calculating holiday pay where the underlying commission scheme already seeks to compensate workers in respect of periods of annual leave.
As this was only an employment tribunal decision, there is also a possibility of an appeal. Although it seems certain that commission based pay should be included in holiday pay, how this should be calculated is still not clear.
Employers may want to wait for confirmation on this point before taking action to change their approach to holiday pay.
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