In December 2014, we reported that Advocate General Bot had delivered his opinion that commission payments should be taken into account when calculating a worker’s holiday pay in relation to the case of Lock -v- British Gas and others.
The case was remitted to the Leicester Employment Tribunal which has given judgment. Although an ET decision, it is of importance to show how such matters can be addressed.
Mr Lock was a salesman, who was remunerated on the basis of a basic salary, supplemented by commission earned as a result of sales achieved, and paid in arrears. Mr Lock could not earn commission while he was on holiday and therefore lost income as a result of taking annual leave. Mr Lock brought a claim in the Leicester Employment Tribunal in respect of this ‘lost’ pay, which in turn made a referral to the ECJ.
The ECJ concluded that member states must take measures to ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work. The case was remitted to the Leicester Employment Tribunal, which agreed that holiday pay should take commission into account; it dealt with the issue by inserting new words into Regulation 16(3) of the Working Time Regulations 1998 as follows:
‘(e) as if, in the case of the entitlement under Regulation 13, 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 correct reference period for determination of the calculation of such holiday pay is a matter that is still yet to be determined.
This judgment was expected. This approach will obviously affect future holiday pay entitlement and claims, although it is disappointing that guidance on the calculation period is still awaited. It will make holiday pay calculations more complex for businesses where variable commission payments are routine.
There has been grave concern amongst employers, as to the extent of claims which may be brought in respect of ‘lost’ holiday pay. However, employers can take heart that the Government has introduced the Deduction from Wages (Limitation) Regulations 2014 which limit employers’ exposure to claims for backdated holiday pay. The Regulations limit all unlawful deduction claims to two years before the date the ET1 is lodged (with the exception of certain categories of unlawful deductions claims such as claims for SSP, SMP, and guaranteed payments). We should note, however, that new Regulations do not apply to claims presented before 1 July 2015.