22 February 2016

Employment Appeal Tribunal confirms today that holiday pay must include an element of average commission earned.

We have reported previously on the Employment Appeal Tribunal’s (EAT) decision in the case of Bear Scotland, finding that where employees take annual leave, their holiday pay for at least 4 weeks per year must include, calculated on an average basis, any sums paid to them by way of remuneration for compulsory overtime, at least if overtime is so regular as to be “normal pay”. There were also controversial findings in relation to the ability to claim underpaid holiday pay dating back many years, and the EAT held that any break of 3 months when there were no underpayments, would “break” the chain of deductions so that earlier underpayments could not be claimed.

This left open the issue as to whether this principle applied to voluntary overtime and to commission payments. The European Court had held that the same principle applies to commission. If an employee usually earns commission, and cannot earn commission because they are on holiday, then their pay will be hit, and that may discourage them from taking holidays. Holiday pay must therefore include an element of average commission earned by the employee. In other words the employee should be paid commission on sales they could not make because they are on holiday.

The employment tribunal in Lock v British Gas followed the European Court’s decision and said that UK legislation (the Working Time Regulations) must be read in such a way as to require employers to pay commission as part of holiday pay for at least 4 weeks per year. The EAT has now upheld that decision and said that the UK courts are required to read the legislation in that way (despite the legislation appearing to be incompatible with the requirements of European law).

There remain numerous practical issues – what if there is evidence that the employee would not in fact have made any additional sales had he been working rather than on holiday? What if he was never going to hit target that month anyway? What if he has already hit his maximum remuneration for that month? When should the unearned commission be paid – for the month the employee is on holiday, or the following month when his earnings would usually be affected by the lack of sales? It is a complex and difficult area, and expert advice should be sought.

Contact: Douglas Strang, Associate dst@bto.co.uk  T: 0141 221 8012