Upholding the decision of the Employment Appeal Tribunal, the Court of Appeal has confirmed that it should where commission amounts to 'normal remuneration'.
This is a hot topic for recruitment businesses and we have previously reported on it. For a reminder of the principles relating to holiday pay and what should be included, see our article from earlier in the year.
In this article we will explore the background to the decision in Lock and the Court of Appeal's decision.
Mr Lock was a sales consultant for British Gas. His average monthly take home pay comprised of basic pay (40%) and commission (60%).
When Mr Lock took annual leave, he received commission based on past sales he had made, but did not receive any sum to account for the commission he would have earned if he were not on annual leave. His salary was therefore significantly lower in the month following any period of annual leave.
Mr Lock brought a claim in the Employment Tribunal (ET) in 2012, arguing that he had suffered an unauthorised deduction from wages in respect of a period of his annual leave.
The process set out below then followed:
The Court of Appeal's Decision
British Gas argued that in interpreting the WTR in a way which complied with the underlying European directive, the EAT and ET were required to re-write the WTR in a way that went against the grain of the legislation and in a way that was contrary to the clear, unequivocal wording of the WTR.
Although the Court of Appeal were swayed by British Gas' arguments, ultimately it rejected them. The Court noted that the WTR was enacted solely and deliberately for the purpose of implementing the European directive and that it was therefore required to presume that the UK government's intention was to entirely fulfill its obligations under European law even where these were not apparent at the time of enactment.
The decision of the EAT was therefore upheld, confirming that statutory holiday pay should include all sums, including results-based commission, regularly earned by employees as normal pay.
This case is significant for recruitment businesses as sales consultants receive variable pay as a result of commission payments.
Whilst there is still some uncertainty in this area, recruitment businesses should be alive to the issues and should, in line with the advice given by the Association of Professional Staffing Companies (APSCo), be taking steps and obtaining legal advice to understand and mitigate the risks to their business. These include:
By taking these initial steps, recruitment businesses will gain a clearer picture of what action they need to take going forward.
The big question remains, accepting that an element in respect of results-based commission should be included when calculating statutory holiday pay, how should that element be calculated? What reference period in which commission was paid should be taken into account? For some, commission earned may be reasonably consistent; for others it may fluctuate considerably thereby skewing the calculation depending upon the period used.
Recruitment businesses should also note that this decision only applies to the four weeks' of annual leave derived from European law and not the additional 1.6 weeks' of leave attributable to purely to domestic legislation or any additional contractual entitlement (although the administrative difficulties of operating two distinct holiday pay calculations may make it impractical to differentiate between the two).
Whether British Gas will seek leave to appeal to the Supreme Court has yet to be confirmed.