Holiday Pay – Latest Development

You will recall that in May 2014 the Court of Justice of the European Union (CJEU) had held that holiday pay must include commission (Lock v British Gas [2014] ICR 813).  Following its European holiday, the Lock case was remitted back to the Leicester Employment Tribunal (ET) to consider various further issues, including whether or not any words needed to be added to the Working Time Regulations 1998 (WTR) so that the calculation of a week’s pay is in accordance with European law.  The ET held that a paragraph should be added to Regulation 16(3) of the WTR such that “…..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 for the purpose of section 221”.  The reference to section 221 is to section 221 of the Employment Rights Act 1996 (ERA).

The effect of this addition to the WTR is that a week’s pay for the purposes of the holiday pay of workers whose remuneration includes commission,  should be calculated by multiplying the number of normal working hours by the average hourly rate (including commission) received by the worker in the 12 weeks prior to the holiday.  The ET reiterated that this method of calculation applies only to the 4 weeks of statutory paid holiday that derive from the EU Working Time Directive, it does not apply to the additional 1.6 weeks derived solely from the WTR.

However, this is not the end of the story.  In its decision, the CJEU did not state what the reference period should be for the calculation of such holiday pay and in its decision the ET set aside the determination of this issue to a later date, depending on the outcome of the hearing.  Two further issues were also set aside.  Firstly, whether or not the relevant commission scheme(s) operate in such a way that they effectively compensate for periods of annual leave so that even if such a scheme is unlawful no further money is due to claimants.  Secondly, the quantification of the claim, if necessary.

For now then, where workers are paid a basic salary or wage plus commission, it is advisable to calculate holiday pay using the 12 week reference period as specified in section 221(3) of the ERA.  We will, of course, keep you updated on any further holiday pay developments and if you require any specific advice on any holiday pay issue, please contact us for further advice.

It should also be remembered that this is an Employment Tribunal decision and therefore does not set a binding precedent.  It will be for a higher court to set a binding precedent.

Published: 03.27.15 - Posted In: Latest News