The court of appeal have this month decided to uphold an earlier Employment Appeals Tribunal (EAT) decision that holiday pay must include results-based commission.
The EAT’s ruling on ‘British Gas v Lock’ in February confirmed that employers must pay commission as part of holiday pay, in line with requirements of Article 7 of the EU Working Time Directive.
The key points of the CA’s decision were:
- that it was possible to insert new wording into the UK’s Working Time Regulations 1998 so that the calculation of holiday pay for the typical 4 weeks’ “Euro” leave would include contractual results-based commission (in line with EU case law). This interpretation was permissible as it went with the grain of the legislation.
- that the key focus under Article 7 of the Working Time Directive is ensuring that a worker receives “normal remuneration” when on leave.
- the parties discussed some difficult borderline situations such as annual bonuses or commission schemes where the worker has to hit a threshold before earning any commission. However, the CA declined to give guidance on how to deal with such situations. Neither was guidance provided, in general terms, as to either what constitutes “normal remuneration” or the correct reference period to use, although the CA approved the methodology applied by the Employment Tribunal that a 12-week reference period was the correct period for this particular case.
The outcome of the appeal, announced on the 7th of October 2016, has been keenly anticipated by the professional recruitment sector due to the comparable nature of sales-based commission in recruitment.
Tania Bowers, General Counsel at recruitment industry body APSCo, said:
“There is still some uncertainty over how employers should calculate average commission payable as part of normal remuneration. The Court of Appeal did not specifically confirm that normal remuneration should be calculated by reference to the average remuneration over the 12 weeks prior to the leave taken, known as the reference period. The Court of Appeal made clear its decision is confined to the facts of the case namely a results based commission scheme, it should not be applied to annual bonus payments or payments triggered by hitting commission thresholds.”
“In addition, the need to pay normal remuneration only applies to the 20 days of WTR holiday, not bank holidays or additional annual leave, where it remains generally acceptable to pay basic pay.”
“We do not underestimate the complexity associated with implementing changes in this area, which is why we are considering how APSCo members can apply the law whilst minimising their administrative burden.”
“APSCo members will receive a briefing at this week’s members meeting with a written advice from one of our legal affiliates scheduled to be delivered next week. However, we are also advising them to take their own legal advice on their particular commission schemes and how the law applies.”
Roger Bull of Burgess Salmon LLP, however, commented:
“British Gas has sought leave to appeal to the Supreme Court. Given the importance of this case, and the CA’s comments about how difficult the issues were (the judge giving the leading judgment stated that he did not find this question easy and that he had wavered between the two outcomes), we would expect leave to appeal to be granted.”
In other words, watch this space. However, APSCo added:
“Employers have been maintaining a watching brief since British Gas decided to bring this case to the Court of Appeal. Consequently, we have been advising members that they may wish to ‘wait and see’ the result of the appeal before implementing any changes. However, while this case may now be brought before the Supreme Court, the general consensus is it is unlikely to be overturned and we are advising members to consider applying the law now and certainly look to mitigate their exposure.”