Tribunal Confirms Changes to Holiday Pay

Tribunal confirms payment of commission should form part of workers’ holiday pay.

The long awaited decision in Lock and others v British Gas Trading Limited has now been published.  We first discussed this case in June 2014 (see here) where Mr Lock claimed that he was entitled commission which he would have earned had he not been on annual leave. The Tribunal considered that there was a conflict between the Working Time Directive and the domestic law as set out under the Working Time Regulations (“WTR”).  Accordingly the case was referred to the CJEU who decided that holiday pay should include an amount to reflect commission that would otherwise have accumulated.  

The Tribunal considered whether the WTR could be interpreted so as to include commission payments when calculating the four weeks annual leave entitlement as provided for by Regulation 13 of the WTR.   As Mr Lock had received holiday pay which excluded commission payments he had suffered an unlawful deduction of wages.

The Tribunal made reference to the other recent holiday pay case of Bear Scotland Limited v Fulton (see here).  In that case the Employment Appeal Tribunal decided that “non guaranteed” overtime should be included in holiday pay.  The same reasoning was used by the Tribunal in this case which decided that the definition of a week’s pay for the purposes of calculating holiday under the Regulations should read “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”.

As with the Bear Scotland case the inclusion of commission in annual leave only applies to the period as allowed for in the Directive (four weeks) and not the additional eight days as allowed for under the WTR.

The decision in this case is unsurprising:  workers who have normal working hours and who earn commission which forms a regular part of their remuneration, this should be reflected in their holiday pay.  Unfortunately the Tribunal have not yet provided us with a reference period to be used to calculate that entitlement, and this will be decided at a future date.  The CJEU had previously stated that it must be based “over a reference period which is considered to be representative.”   In the absence of clarification from the Tribunal, this could be 12 weeks (which is the reference period used where an employee has no normal working hours), or 12 months as suggested by the Advocate Generale.  Therefore if you have a worker who earns significant commission over the Christmas period for example and then takes holiday afterwards, you may be able to argue that the preceding period is not ‘representative’ as it reflects a ‘spike’ in the figures.  Instead, a wider reference period should be used.     

As for any outstanding holiday pay claims, they will be subject to the three month limitation period for bringing a deduction of wages claim.  Like the Bear Scotland case this is likely to attract arguments from employees that they have experienced a ‘series of deductions’. The EAT set out in that case that this chain of deductions would be broken where there is a gap of more than three months between the alleged deductions.  

Also the government has introduced the Deduction from Wages (Limitation) Regulations 2014 which will come into effect on the 1 July 2015.  These Regulations will limit any backdated claims to a two year period.  

Employers whose staff are remunerated by way of basic pay and commission will need to review their pay systems and decide what reference periods are appropriate depending on the nature and frequency of the commission payments.

If you would like to discuss this artcile in more detail, please do not hesitate to contact any member of our Employment team.