14 Oct 2016

Court of Appeal locks commission into holiday pay

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A busy day at the Court of Appeal on Friday last week, saw the Court publish its decision in the case of Lock and another v British Gas Trading, upholding the Employment Appeal Tribunal's (EAT) decision that holiday pay must include a representative element of results-based commission for workers who receive regular commission payments as part of their normal remuneration.

Although not confirmed, an appeal to the Supreme Court is anticipated, continuing the state of uncertainty that has persisted since this line of cases began in 2009.

For a summary of the facts, please click here for a link to our previous alert on the EAT's decision in this case.

Whilst the Court of Appeal upheld the EAT's decision it declined to speculate on the position of other workers, such as those in financial services who often receive results based annual bonuses.

Practical points

In the short term, with a further appeal likely, employers should incorporate an appropriate apportionment for commission the employee would have earned, but for their annual leave, when calculating the holiday pay due to employees who regularly earn commission as part of their normal remuneration.

How this amount should be calculated is still unclear and the Court of Appeal declined to give guidance. Even ACAS guidance on calculating holiday pay still states in relation to commission:

"at present, there is no definitive legal answer about how such holiday pay calculations must be made, or how/if claims can be backdated."

Given the financial implications for employers, who potentially face hundreds if not thousands of claims for backdated holiday pay (British Gas believes it could have around 1000 claims from its workers) it is hoped the government will issue guidance urgently on the impact of this ruling and particularly how claims should be calculated.

In the meantime some employers, rather than calculate the amount on an on-going basis, have adopted an annual reconciliation approach to ensure that staff are paid the correct holiday pay – with a balancing payment being made in lieu, if necessary.  Although not compliant with the letter of the law (you can only pay in lieu of holidays on termination of employment) it is within the spirit of ensuring staff are paid correctly for their holidays and is unlikely to be met with any objection by staff.  Please note that these payments only apply to the Working Time Directive holidays (i.e. the first 20 days paid holiday per holiday year – not bank/public holidays or contractual holidays).

The case highlights the conflict between EU and UK law. It will be interesting to see the UK government's reaction to this ruling, particularly given Theresa May's recent pledge that workers' rights will not only be protected following Brexit, but enhanced. Watch this space.

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Beth Hale

Beth Hale
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