Holiday Pay and Commission - The waiting game is over

Earlier this month the Supreme Court confirmed that it would refuse to hear an appeal in the holiday pay case of Lock v British Gas, bringing to an end one of the most high profile and longest running employment law cases of recent times.

As regular readers may recall, this case is about whether holiday pay must include a sum to reflect commission that an employee would have earned had he or she not taken holiday. Mr Lock earned approximately 60% of his pay through commission but his holiday pay was calculated by reference to his basic salary only.

After the European Court of Justice clarified that the EU Working Time Directive requires holiday pay to reflect a worker’s normal pay, the Employment Tribunal (ET), Employment Appeal Tribunal (EAT) and Court of Appeal all agreed that the Working Time Regulations could be interpreted as requiring holiday pay to take account of commission (though only in respect of the 4 weeks’ holiday which UK workers derive from the EU Working Time Directive).

However, as we reported in October 2016, the Court of Appeal narrowed the scope of the previous ET and EAT rulings by stating that its decision only applied to results-based commission. It also declined to provide any guidance on how employers should calculate the commission element of holiday pay in practice. The Supreme Court’s refusal to allow an appeal means the Court of Appeal’s decision still stands and is unlikely to be overturned any time soon.

Employers who were waiting for the Supreme Court to provide a more helpful judgment will now need to take stock of their approach to holiday pay in light of their potential exposure to claims. While the mechanics of calculating holiday payments remains uncertain, the current body of case law has now clearly established employers’ responsibility to ensure holiday pay reflects sums normally received on top of basic salary, including both results-based commission and overtime.

Unfortunately, this remains a complex area. Please contact Ian Machray at ian.machray@fsp-law.com or on 0118 951 6225 to have a free initial discussion on your arrangements and any questions you may have.

This is an extract from Field Seymour Parkes' free monthly employment law update, if you would like to receive the full copy of future editions please subscribe at http://www.fsp-law.com/business/employment/employment-ebulletin-subscription