Partner Piece – Holiday Pay Entitlement – Getting it Right

December 6, 2016

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The eagerly anticipated Court of Appeal (CoA) judgement in the case of Lock v British Gas Trading has been delivered and, rather unsurprisingly, the CoA has confirmed that commission should be included in holiday pay calculations.

An overview of the case

British Gas Trading Ltd employed Mr Lock and paid him basic salary plus commission determined with reference to sales performance. This commission constitutes around 60% of Mr Lock’s total remuneration but despite this his holiday pay only included his basic salary. Mr Lock brought a claim in the Employment Tribunal (ET) alleging breach of the Working Time Regulations 1998, and the ET subsequently referred the matter to the European Court of Justice (ECJ) for determination.

The ECJ held that the Working Time Directive requires contractual commission to be included in statutory holiday pay, because this commission is part of a worker’s normal remuneration. To decide otherwise would deter the worker from taking holiday by placing them at a financial disadvantage during periods of annual leave, which is contrary to the rationale behind the Directive.

Following the ECJ’s decision, the ET interpreted the Employment Rights Act 1996 in accordance with the decision meaning that certain payments outside of basic salary, such as commission, are to be included in statutory holiday pay. British Gas appealed the decision and the Employment Appeal Tribunal (EAT) dismissed this appeal, again reiterating the point that our domestic legislation can and should be interpreted in a way that conforms to European law on holiday pay. British Gas subsequently appealed to the CoA, who dismissed the appeal, again upholding that commission payments should be included in holiday pay.

What now?

Although the outcome of the appeal was rather foreseeable, the CoA’s ruling is helpful in clarifying that where there are results-based commission payments, holiday pay should be calculated using the 12 week average reference period. Employers should therefore amend their holiday pay calculations to reflect this 12 week reference period, if they have not done so already.

Gurpreet Sanghera, head of EMW’s Recruitment Agency Sector team, says “the decision is a reminder for recruiters and employers alike to ensure they’re up to date with the law on holiday pay. After the latest string of legal decisions in this area it’s more important than ever for businesses to ensure they’re paying their employees the correct holiday entitlement to avoid unnecessary and costly legal proceedings. If you’re unsure, it’s best to seek legal advice to avoid any disputes”.

Outside of this, it’s remains unclear how reference periods should be calculated or indeed whether different reference periods should be used in situations where commission is paid either at different times of the year or perhaps less regularly. The judgement does consider that certain alternative circumstances may call for different reference periods, but this remains uncertain at present. Further clarity would also be welcomed on the role of other payments such as voluntary overtime and bonuses in calculating holiday pay.

But what about Brexit?

All of the above remains applicable at the time of writing. Until such time that the UK formally exits the EU, UK legislation must be interpreted in accordance with ECJ decisions.

However, thinking more long-term, the Government has announced its intention to end the ECJ’s jurisdiction in the UK and will introduce a ‘Great Repeal Bill’. One effect of this will be that once the UK exits the EU, UK legislation will no longer have to be interpreted in accordance with EU law. This will make decisions such as Lock v British Gas, which are decided wholly in accordance with the ECJ’s rulings, vulnerable to legal challenge as and when similar cases arise.

If you require further advice on how you should be calculating holiday pay for your recruitment consultants, or on behalf of any of your clients, contact our Head of Recruitment Gurpreet Sanghera at EMW Law.

 

www.emwllp.com

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