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The decision is in; the Court of Appeal has held that holiday pay should include commission.
Facts of the case
Mr Lock was a salesman for British Gas on a basic salary with variable commission paid in arrears. His commission depended upon the outcome of his work, not on the time worked i.e. sales achieved. Therefore Mr Lock could not earn commission whilst on annual leave and would lose income by taking time off. He pursued a wages claim for his ‘lost’ holiday pay after taking annual leave in December 2011 to January 2012.
In 2014, the case was referred to the European Court of Justice (ECJ) for direction on applying the Working Time Directive, who held that when calculating holiday pay, Member States must ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work. Unfortunately the ECJ left the mechanics of working out how much that should be to the Member States.
Issue and decision
The issue for the Court of Appeal was whether the Working Time Regulations 1998 (our UK legislation) can be interpreted as including holiday pay in respect of commission. This is because the wording of the Employment Rights Act 1996 suggests not, hence the appeal by British Gas.
The Court of Appeal (Court) held it can, as did the Employment Appeal Tribunal and the Employment Tribunal before it. The Court got around the problem with the legislation by adding a new subsection to the Working Time Regulations 1998, under the excuse of statutory interpretation.
So what does this mean for employers?
When calculating holiday pay, workers are entitled to be paid an amount which reflects the commission they would have earned if not absent on holiday.
However in respect of how we actually calculate it, unfortunately the Court decided not to answer that. In fact in the Court’s judgment when discussing the calculation in bonuses and commissions, states “nothing in this judgment is intended to answer them” neither does it provide guidance on the reference period, instead it states “There may also be questions as to what, in any particular case, the appropriate reference period for the calculation of pay. I say nothing about any of that.” So we are still at a loss and it will be for the employment tribunals to have to decide.
For those members who have been waiting for the decision prior to deciding what to do with employees’ holiday pay, now is the time to start averaging holiday pay to prevent potential claims for wages of underpaid holiday pay.
Andrew Macmillan, Solicitor, Motor Industry Legal Services