Holiday Pay Update
British Gas –v- Lock (EAT)
Background
There has been focus on the calculation of holiday pay by employers since the decision of the Employment Tribunal in the case of Bear Scotland which dealt with the issue of overtime when calculating holiday pay.
The British Gas case dealt with the issue of commission when calculating holiday pay and was recently considered by the Employment Appeal Tribunal (“EAT”) following a reference to the Court of Justice of the European Union.
In 2012, Mr Lock brought a claim for unlawful deduction from wages. He was the lead claimant for a large number of tribunal claims lodged in Leicester and other regions.
When Mr Lock took holiday, he was entitled to basic pay and continued to receive commission based on his earlier sales. However, his commission payments were lower during the months that followed because he had been unable to generate sales while on holiday. Mr Lock successfully argued that holiday pay should reflect the income that a worker would usually receive had he/she been working, and therefore that these future payments should be enhanced to reflect the commission that he would otherwise have earned during his annual leave.
British Gas appealed.
Decision
The EAT dismissed British Gas’ appeal and confirmed that commission should be included when calculating holiday pay for an employee whose normal remuneration includes the payment of commission.
Comment
This latest EAT decision provides confirmation of the principle established in recent decisions including Bear Scotland that where an employee’s normal pay varies through the working of overtime or payment of commission holiday pay should be calculated taking account of the variations whether those be caused by overtime working or commission payments.
Legislation was also introduced to limit the potential for “back dated” claims for underpayment of holiday pay but looking forward employers whose employees’ pay does vary would be well advised to consider what “normal” pay is when calculating holiday pay.
Employers would be wise to consider the impact now in order to avoid a future build-up of arrears and possible claims.
However, the story does not end here! British Gas has already confirmed its intention to appeal the EAT’s decision. If its application is successful then it may be some months again before we have a final decision on the issue and employers can be clear on whether or not commission payments should be included when calculating holiday pay, although all things considered it is likely that this will be the case.
If leave to appeal is refused, the case will be resubmitted to the original tribunal in order to establish on the specific facts whether Mr Lock did in fact suffer an unlawful deduction from wages.
If you are an employer that regularly pays commission payments and you have not already done so, we recommend that you review your current practices in order to alleviate the risk of unlawful deduction from wages claims arising and in order to assess potential liability.
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