Holiday Pay and Commission

The long awaited decision in a case of British Gas Trading v Locke & Another in the Court of Appeal has been handed down and employers in certain sectors are now counting the cost of what this means to their business.

The Court of Appeal has upheld the previous decisions by ET and the EAT confirming that the Working Time Regulations can be interpreted so as to include results based commission payments when calculating holiday pay for the four weeks annual leave provided by Regulation 13.

In summary, Mr Locke was employed in a sales position with a remuneration package of which commission formed 60%. This resulted in him receiving less pay following a period of annual leave because he had been unable to generate any sales whilst on holiday.

The European Court of Justice had held that his pay should be enhanced to reflect the commission that he would have been entitled but for having taken a period of annual leave. The case was then referred back to the Employment Tribunal to determine whether the Working Time Regulations could be interpreted to give effect to the ruling of the European Court of Justice.

Whilst the decision of the Court of Appeal is one that is technically arrived at, and adds very little to the position we were at two years ago, it is additional confirmation that when calculating holiday pay, employers need to ensure that workers receive an amount which reflects the commission they would have earned if they had not been on holiday. There is unfortunately no clarification whatsoever as to how the calculation should be carried out with most employers adopting a 12 week period.

The Court of Appeal did however indicate that its decision was limited to contractual results based commission.

Over the last two years there have been mixed reactions to this decision with some employers embracing the increased financial burden, others holding out to see how the Court decisions would pan out and others just sticking their heads in the sand! There is no doubt that the decision has far reaching financial impact in certain industries and some businesses may struggle to meet the additional costs this imposes.

If you need further guidance on the impact of this decision on your business, please contact Shiva Shadi, Head of Employment via e-mail to shiva.shadi@dbf-law.co.uk or by telephone on 0161 832 3304.

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