10 October 2016

The Court of Appeal has issued the latest decision in relation to the recent “hot topic” of holiday pay. Over the last few years, employers have had to wrestle with considerable uncertainty in this area.

When an employee takes a week’s holiday and is due a week’s pay, how is that pay calculated? It seems a simple question, but has proved to be anything but.

The Bear Scotland litigation confirmed that where an employee works regular overtime, that should be included in holiday pay, averaged over an appropriate reference period. That applies to the first 4 weeks leave per holiday year.

The British Gas litigation has dealt with the different issue of whether commission should be included in holiday pay. The Employment Appeal Tribunal (“EAT”) previously held that it should; otherwise an employee would “lose out” by taking holiday, as their earnings would reduce as they were unable to earn commission while on annual leave.

The Court of Appeal has now upheld the EAT’s decision from earlier this year that holiday pay must include contractual results-based commission.

The Court of Appeal held that the EAT was correct to uphold the employment tribunal’s decision that the Working Time Regulations 1998 can be interpreted to require employers to include a worker’s commission in the calculation of holiday pay. It confirmed that holiday pay should include an element referable to the amount of results-based commission “normally” earned, so that the worker should receive the same remuneration as he would have received if at work. This would usually be achieved by looking at average commission over the 12 week period prior to the holiday, and including that average in holiday pay.

Where workers earn commission on all sales every week/month, and commission is part of normal pay, this decision seems reasonable – holiday pay should be “normal pay”. However, more complex issues can arise: what about an annual results based bonus? Is that “normal pay”?

What about a worker who receives commission only when a particular level of turnover or profit is achieved, or where the worker has achieved the maximum commission for that month irrespective of being on holiday for some of the month? How does one, in such a case, ensure that the employee earns what he would have earned if at work?

These are difficult issues and the Court of Appeal expressly declined to provide answers, stating that these would have to be dealt with at a later date if a case arose which dealt with these specific issues. In terms of providing guidance, therefore, for employers, the latest decision does not shed a lot of light on these challenging issues.

British Gas have applied for permission to appeal to the Supreme Court, so there could yet be further developments in relation to commission.

Contact: Douglas Strang Senior Associate dst@bto.co.uk T. 0141 221 8012

Ref: British Gas Trading Ltd v Lock & Anor