Holiday Pay – All Inclusive?
4 November 2014 by Lawrence Adams
The Employment Appeals Tribunal is due to hear important appeals this week by three different sets of employees. Employees of Hertel, Bear Scotland and Amec all brought claims against their employers to determine whether their holiday pay should be based upon their basic income or their average earnings inclusive their entitlement to contractual commission payments.
The ruling is highly anticipated and follows on from an important European Court of Justice ruling in the case of Lock v British Gas Trading  I.C.R. 813. The Claimant in that case was paid a basic salary which the employer supplemented with a contractual commission payment based upon the amount of sales made. Holiday pay was calculated with reference to just the basic rate of pay and didn’t take into account any missed commission payment for the period.
The courts in that case decided that an employee is entitled to their normal remuneration when receiving holiday pay. Normal remuneration included payments that were linked to the performance of the worker’s tasks under the contract, such as commission payments. It was held that failure to take account of commission payments was liable to deter the worker from actually exercising his right to take his annual leave.
The Court did not rule on the method by which employers should calculate commission-based holiday pay, leaving this up to the United Kingdom’s national court to assess.
Soon after the judgement, British Gas Trading reached an out-of-court settlement so the matter was not considered by the Employment Tribunal although the Attorney General had indicated it would be appropriate to calculate any payment with reference to an average of the previous 12-month.
The current cases are the first of an increasing number currently working their way through the tribunal system. They are expected to provide clear authority on how employers should calculate holiday pay for employee’s who receive commission payments. Once this is clear, commentators are predicting that the floodgates could open, igniting a market for “owed holiday pay” claims, the repercussions of which could be costly for large and small companies.
If you are an employer in need of legal advice on the subject of holiday pay entitlement or if you are looking for advice on a variety of other employment issues, please contact either Beth Baird or Lawrence Adams on 01206 835 230 or by email at [email protected] or [email protected]
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