Holiday Pay and Commission

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Lenard Washington
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1 Holiday Pay and Commission Lock v British Gas Trading Ltd British Gas calculated Mr Lock s annual leave at his basic rate. Mr Lock felt this was unfair given that he could not earn commission when he was on holiday and therefore his pay would be lower than what he would ordinarily receive. A decision by the Court of Justice of the European Union (CJEU) that commission should be taken into account when calculating holiday pay (even if unearned) will have wide reaching ramifications on the transport industry. Any employers with employees who have variable components to their pay, such as a no accident bonus, attendance bonuses etc. should take note. Facts Mr Lock is employed by British Gas Trading Ltd (British Gas) as an internal energy sales consultant. His pay consists of two elements, basic pay and commission. Approximately half of his pay is made up by commission based on sales. Mr Lock claimed unpaid holiday pay in the Employment Tribunal. The Tribunal referred the matter to the CJEU as the issue of how to calculate holiday pay had previously resulted in conflicting decisions in the Employment Appeal Tribunal. The CJEU Decision The view taken by the Advocate General was that the right to annual leave is an important principle of EU law. Employees should not be deterred from taking holiday. The facts in this case were that that Mr Lock would be put at a financial Page 1 of 6

2 disadvantage because he was on holiday and unable to earn commission. As payment of commission was intrinsically linked to the performance of Mr Lock s tasks under his contract of employment, it was recommended that commission should be taken into account when calculating holiday pay even if the commission had not been earned. The Advocate General s view was that it was for the national court to determine how the amount of holiday pay reflecting commission should be calculated. However, he considered that taking the average amount received by the worker over a representative period, for example, the previous 12 months, would be appropriate. Comment This decision may have a significant financial impact on the transport industry. If the pay packet an employee receives includes any form of commission payment or variable pay based on performance which is not truly discretionary, it is now likely that these should be included in the calculation of the employee s holiday pay. There is also the possibility that employees may take advantage of profitable busy periods, such as a lucrative summer which may introduce a financial incentive for employees to take their leave during the quieter period to maximise their holiday pay. Perhaps even more concerning, is that employees may bring claims against their employers for historically having failed to include commission in their holiday pay. However, as this decision is a first stage opinion and referred back to the UK Employment Tribunal, it may be a while before the Tribunals' approach to this issue is determined. Whilst the recommendation of the CJEU has been to calculate a reference period of 12 months, the UK courts may choose to take the approach of a 12 week period which is the current practice in the UK. In conclusion, it may be prudent for employers to start thinking about how an employee is paid. If employee s are receiving pay which includes regular commission payments, it may be appropriate to consider taking steps to adjust financial budgets to take into account any additional payments which may have to be paid out in relation to holidays. This issue is no doubt a financial and administrative minefield for employers and one that will need to be considered carefully. Overtime The issue of voluntary overtime when calculating holiday pay is also yet to be determined. There have been conflicting cases on this and a decision by the Employment Appeal Tribunal is due following a hearing at the end of July In the meantime, employers have continued to calculate holiday pay without inclusion of overtime. Page 2 of 6

Increased Penalties for Aggravated Breaches of Employment Rights Employment Tribunal cases brought on or after 6 April 2014 will be subject to new rules providing for increased penalties for breaches

3 Increased Penalties for Aggravated Breaches of Employment Rights Employment Tribunal cases brought on or after 6 April 2014 will be subject to new rules providing for increased penalties for breaches of employment rights where the Tribunal views there to be aggravating features. This new additional penalty will be entirely at the Tribunal s discretion. However, the amount of the penalty will be fixed at 50% of the compensation awarded, subject to a minimum amount of 100 and a maximum amount of If the penalty is paid within 21 days, a discount of 50% will be applied. What is likely to amount to an aggravated breach? The following factors are likely to persuade a Tribunal that the employer s behaviour had aggravating features: Whether the behaviour of the employer was intentional or malicious; Whether the employer had a HR department; and Page 3 of 6

4 Whether the employer has a history of breaches of the particular employment right in question. Additionally, a nonexhaustive list of factors, which a Tribunal may take into account are listed in the Explanatory Note to the legislation: The size of the employer; The duration of the breach of the employment rights; and The behaviour of the employer and employee concerned. Comment There is no settled definition of what constitutes the breach of an employment right with aggravating features and it appears that the guidance is sufficiently broad to allow Tribunals to impose the new penalty often if they are inclined to do so. This all leads to the present reform introducing a further bargaining chip into the hands of employees, which might lead to more settlements before cases reach Tribunal and even produce higher settlements due to the new added threat to employers if they lose. As a further point, it is worthwhile to note that the new penalty may be properly characterised as a tax as opposed to a compensatory measure, since the penalty amount goes to the government s consolidated fund. Abolition of discrimination questionnaires The discrimination and equal pay questionnaires under the Equality Act 2010 have now been abolished and replaced with non-statutory Acas guidance. The previous legal provisions provided for prescribed questions to be served on employers by any employee who thinks that he or she might have a claim for discrimination, harassment or victimisation. Adverse inferences could be drawn at Tribunal from an employer s failure to answer questions or provision of insufficient information in response to a legitimate question. This was widely perceived as handing employees a tactical advantage by compelling information from employers prior to a claim even being brought. Under the new law employees will still be able to ask questions but will not be required to do so within the constraints of the now defunct discrimination questionnaires and the accompanying time limits. The process is now governed by the non-binding, good practice Acas guidance which sets out a new, more informal process for employees to follow. Under the new Guidance there is no legal obligation for employers to respond to discrimination questions Page 4 of 6

5 they receive from employees. However, employers should exercise caution in adopting this approach as failure to sufficiently answer a legitimate and reasonable employee question could count against the employer if the dispute reaches Tribunal. The reality is that in most cases the impact of this change is likely to be minimal and the general advice for employers remains the same: Responses should be considered and sufficient, and where necessary an employer should carry out an investigation before responding. Responses should be issued within a reasonable timeframe. Employers should make an effort to engage with an employee who has raised an issue or question to try to resolve the dispute. Additionally, the Guidance sets out three main issues respondent employers should consider when they receive a discrimination questionnaire: 1. It will be best practice for employees to provide a sufficiently detailed, but brief, description of the treatment which is the subject of the complaint. The employer should firstly consider whether they agree with the employee s account of events and question(s). This should be followed by a brief but sufficient statement setting out the employer s account of event, which should be supported by reasonable and appropriate investigation/inquiry. 2. The second point relates to justification. In response, employers should carefully consider whether any of the treatment which is the subject of the employee s complaint was justified. If this is the case, the employer should sufficiently outline this justification. Page 5 of 6

3. If the employer believes a question which is received from an employee is not sufficiently clear or not relevant, then the employer can request the employee to clarify the question to enable an

6 3. If the employer believes a question which is received from an employee is not sufficiently clear or not relevant, then the employer can request the employee to clarify the question to enable an appropriate and sufficient response to be issued. Comment It is worthwhile for employers to bear in mind the rationale behind discrimination questionnaires - to bring about speedy and amicable resolutions to employeremployee disputes. The aim is to prevent disputes from escalating and leading to a claim at Tribunal. Therefore, engaging in this dialogue process can be beneficial for employers as it enables them to understand the employee s concerns and offers the opportunity to resolve disputes early on. However, the reality is that this process can serve as a way for employees to gather information which can assist them later at Tribunal. Employers should bear in mind that there is no longer a legal obligation on them to respond; or to respond in any particular form. Therefore, it is often the best approach to investigate fully and respond in a considered and careful way. Additionally, if the employee s concerns are legitimate and serious, it might be worthwhile to seek legal advice before responding. DID YOU KNOW BACKHOUSE JONES PROVIDE THE FOLLOWING SERVICES: Mergers & Acquisitions; Company disposals; Management buy-ins / buy-outs; Group and Company restructures; Joint Ventures; Investment and Shareholders Agreements; Banking and Finance; Corporate Recovery; Company Formations; Partnership and LLP advice & formation; Corporate Governance & Companies Act compliance; Commercial Contracts - Terms & conditions, Supply agreements etc; Agency, distribution and franchise agreements; and Commercial Property Page 6 of 6

An overview of Employment Law in England & Wales. April Please contact our Company Commercial department for further information

An overview of Employment Law in England & Wales April 2017 Please contact our Company Commercial department for further information An overview of Employment Law in England & Wales 1 Contents Page 1)