Holiday pay – where are we now?

Holiday pay must include compensation for any results-based commission that would ordinarily be earned, according to the latest judgment in the long-running case of Lock v British Gas.

Holiday Pay Background

The claimant (Lock) was a telephone sales representative employed by British Gas who was paid a basic salary and in addition received commission depending on the number of sales for which he was responsible. Under the commission scheme, payments were made not at the time that the work which generated the commission was done, but several weeks or months after the sales contract with the respondent was entered into. This could mean that there would be a substantial gap in time between the claimant generating sales and commission payments being made.

Holiday Pay Employment Law

The claimant took annual leave from 19 December 2011 to 3 January 2012. As the claimant did not work during his period of annual leave, he was not able to make any new sales or follow up on potential sales during that period. Accordingly, he was not able to generate commission during that period. The claimant was not paid a sum in lieu of the commission he might have earned.

Therefore, whenever the claimant took annual leave there was an adverse effect on the salary he received during the months following his annual leave.  The claimant brought a claim in the employment tribunal for outstanding holiday pay in respect of the period from 19 December 2011 to 3 January 2012.

The employment tribunal decided to refer certain questions to the European Court of Justice (ECJ) for a preliminary ruling as to whether commission should be included when calculating statutory holiday pay.

The ECJ held that, under the Working Time Directive, commission which is intrinsically linked to the performance of the tasks that the worker is required to carry out under his contract of employment should be included when calculating pay in respect of statutory holiday periods.

Following this opinion the case was referred back to the UK to be applied to UK law.  In order to comply with the ECJ the employment tribunal added a subsection to the Working Time Regulations so that they could comply with the ECJ's ruling.

Appeals to the Employment Appeal Tribunal and Court of Appeal followed.

The Court of Appeal held that it was not a judicial exercise amounting to the repeal or amendment of the legislation to add words into the WTR 1998 to make that meaning clear. It was instead an example of the court performing its duty to provide a conforming interpretation to legislation introduced for the purpose of implementing a Directive.

What does this mean?

As a result of this most recent decision the position is that holiday pay must include compensation for any results-based commission that would ordinarily be earned.

Comment

What should be included in the calculation of holiday pay has been one of the biggest issues facing employers, individual workers, unions and those advising them over past few couple of years.

Whereas, the judgment gives some further clarity and what should be included in the calculation of holiday pay it is worth noting that the decision is expressly limited to 'results-based commission' as compared with 'commission' generally because Mr Lock's case was concerned solely with 'results-based commission'.

The case will, yet again, be passed back to the employment tribunal to answer the question of how the claimant's holiday pay should be calculated.  This will be of particular importance to employers who will want clarity on what reference period should be used for calculation purposes. 

The Working Time Regulations envisage a 12 week reference period to calculate average pay before the holiday is taken.  However, there is some ambiguity as to what reference period should be referred to under EU law which may require a potentially longer reference period.

Given the important questions raised in this case it is likely that there may be a further appeal to the Supreme Court.   

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 The small print: This blog is for information purposes only and should not be construed in any way as providing legal advice.