10 October 2016

Commission and holiday pay: Court of Appeal uphold EAT decision

This article was written by Tamsin Rickard, Professional Support Lawyer

We have reported previously on the series of holiday pay claims that have dramatically changed the law on what workers must receive during annual leave. A key shaping factor in the change has been the decision in Lock v British Gas, both in the ECJ and in the Employment Tribunal ('ET') decision, which determined that employers must include commission and other types of variable pay in holiday pay calculations. The reasoning was that such payments were paid with sufficient regularity for them to form part of the worker's normal remuneration, and that failure to pay these during holiday time would place the worker at a financial disadvantage (and therefore potentially discourage them from taking holiday).

However, nothing in the Working Time Regulations 1998 (“WTR”) as originally enacted requires that commission should be included in holiday pay. On the face of it, the WTR is thus out of step with EU law. The Employment Tribunal and the EAT in Lock both found a way round this by "reading into" the WTR extra wording requiring that commission should be included in holiday pay calculations under the WTR. This was appealed on the basis that this runs counter to the clear wording of the legislation, and arguably isn't permissible on the basis of judicial interpretation.

The litigation has now reached the Court of Appeal which has upheld the rulings of the EAT and ET that the WTR can be read in this way.

It’s important to note that the appeal was not a challenge to the original ECJ decision, but rather to the finding that the WTR could be read flexibly, so as to require employers to include commission in holiday pay. If the appeal had failed, the government would have needed to legislate to correct the position. So what was at stake here, if the end result would be the same? If it was necessary to introduce new legislation then any changes will only take effect going forward from the date the change was made. Whereas, as the Court of Appeal confirmed that the case could be decided on a reinterpretation of the current law, this means the case merely clarifies what the law always said (although clearly this is something of a legal fiction!). Or to put it another way, new law would mean no back pay claims for commission errors. And (although this is pure speculation), perhaps in light of the Brexit vote, any new law might have been kicked into the long grass pending the UK’s formal exit from the EU, and hence never implemented.

What does this mean for employers?

In short, this ruling means that employers who pay commission to their staff but who don’t reflect it in holiday pay calculations are at risk of a claim.

Unfortunately, uncertainty remains for employers. The Court of Appeal judge expressly ruled out addressing the potentially wider implications for employers whose remuneration packages go beyond basic salary. In fact, he went further and made clear the ruling applied only to "results-based commission” and not commission or other payments more generally. As a result, employers face uncertainty as to the scope and calculation of sums that should be included in holiday pay, both in terms of paying staff on an ongoing basis and also in quantifying potential historic liabilities for back pay. There is one silver lining, as readers may recall; back pay claims brought now are subject to legislation limiting the period for which these kinds of losses can be claimed.

Data Central

Have you checked out our new Data Hub? Data Central contains a range of resources to help our clients minimise the legal, regulatory and commercial risks this data-driven environment presents and ensure that its full value is being realised.

A Guide to Investing in Australian Real Estate

Investing Down Under offers a quick overview of the legal, taxation, FIRB and structuring issues you may encounter when investing in Australian real estate.

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter Share on Google+
    You might also be interested in

    Recent caselaw sheds light on how to investigate allegations which pit one person's word against another's.

    13 December 2016

    EAT confirms that employers have positive duty to arrange for employees' rest breaks.

    12 December 2016

    The Autumn Statement 2016: key points for employers.

    12 December 2016

    Gender Pay Gap Reporting arrives early - but questions remain.

    09 December 2016

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.