The Court of Appeal has confirmed its decision that holiday pay must include any results-based commission earned by an employee.
The holiday pay ruling relates to the case of Lock v British Gas Trading Ltd, whilst earning a basic salary, also had considerable potential for earning commission on top. When the employee took holiday, he was paid his basic salary plus any commission earned in previous weeks which was due to be paid. When he came back to work after his holiday, the employee found that his pay was low, as he had not been earning commission while away from work. Unhappy, the employee decided to bring a claim for unlawful deductions from wages.
The European Court of Justice (ECJ) maintained that a worker is entitled to have their normal pay when they take their annual leave, and that this should include commission. British Gas appealed this decision.
The Employment Appeal Tribunal (EAT) cited the Working Time Regulations (WTR) to support the ECJ’s ruling and dismissed the appeal. So British Gas took their case to the Court of Appeal.
The Court of Appeal held that the court can and should interpret the WTR to mean that the employee is entitled to have their holiday pay calculated in reference to their normal remuneration and that his commission earnings to be taken into account when calculating his holiday pay.
But the Court did not comment on how commission should be included in the holiday pay calculation.
The effect of the tribunal’s decision implies that there should be a 12 week reference period prior to the period of annual leave, over which earnings should be averaged in order to calculate holiday pay. However, the Court of Appeal did not comment on whether this was the correct reference period in all cases.
If the reference period can vary in regards to the part of the normal pay under consideration and the particular pay arrangements of the employer and employee, this could make calculating the payment of holiday pay a huge headache for employers. Not to mention the increased wage bill they will be faced with.
Impact on employers
This ruling paves the way for commission payments to be included in holiday remuneration and could have significant financial implications for employers.
There are still unanswered questions around the appropriate reference period for averaging holiday pay and whether other features of pay, such as overtime and bonuses, should be included in normal remuneration.