Last year, we reported on the case of Bear Scotland which held that statutory holiday pay under Article 7 of the Working Time Directive was to be calculated by reference to normal remuneration intrinsically linked to a settled pattern of work or by reference to average pay over a defined period of time. The Employment Appeal Tribunal has handed down another decision which serves to cement this position.
Mr Lock was employed by British Gas as a salesman. His remuneration package included a salary plus commission that was based on the number and type of contracts he persuaded customers to enter into. When he took periods of annual leave, he would be paid just his basic salary, with no payment for commission. This resulted in a significant reduction when compared with his normal pay. Mr Lock first challenged this at an employment tribunal in April 2012 which held that results-based commission must be included when calculating holiday pay.
Employment Appeal Tribunal (EAT)
The appeal by British Gas was based on the following:-
- The decision in Bear Scotland concerned non-guaranteed overtime and not commission and therefore could be distinguished.
- Bear Scotland was wrongly decided.
- Bear Scotland was not binding on the EAT and should not be followed.
The EAT dismissed the appeal. The EAT found that it was not possible to distinguish Bear Scotland from the present case on the basis that the cases concerned different types of pay (overtime and commission respectively). Although the EAT is not bound by its earlier decisions, it will generally follow them unless there was an established exception. The EAT’s decision in Bear Scotland was not manifestly wrong and there were no exceptional circumstances so a departure from it could not be justified.
This case confirms the position that in calculating holiday pay, employers must consider all regular payments that could be classed as remuneration. If the additional regular payments can be viewed as payments that are intrinsically linked to the performance of the worker’s duties, then it is likely that these payments should be included.
However, what is still unclear is how to calculate the holiday pay an employee is entitled to. There is still no guidance over the ‘reference period’ employers should be considering when averaging pay. The cases on holiday pay provide that the reference period must be a representative normal period i.e. holiday pay should reflect the employees normal pay when working.
Employers are generally adopting a reference period of 12 weeks to calculate average pay as set out under the Employment Rights Act 1996 but there is no guarantee that this will be reflective of an employee’s normal pay.
It does appear that this is not the end of the story as there is still uncertainty over the calculation of holiday pay and it is also understood that British Gas are seeking permission to appeal the decision of the EAT. The question of whether or not to include commission and overtime in holiday pay is likely to continue.
For advice on calculating holiday pay, please speak to a member of the Employment Team at Devonshires Solicitors LLP.