Do you have employees whose pay varies depending on things like commission? If so, then you need to know about the recent case of Lock v British Gas Trading.
The case involved the question of how holiday pay should be calculated for employees with variable pay. Traditionally, employers have tended to calculate holiday pay on basic salary only, or if an employee works variable hours then an average over a 12 week calculation period is used.
In this case, Mr Lock was a sales consultant for British Gas Trading, with fixed working hours. His usual take home pay was made up of about 40% basic salary, with the rest commission. Commission was paid after sales completed so he found that after he returned from holiday his absence would cause a period when he would not receive any commission. He brought a claim to the Employment Tribunal on this basis.
The Employment Tribunal referred the question to the European Court of Justice (ECJ), asking them to decide whether the Working Time Directive requires holiday pay to include payments they would have earned during that period if they had not taken annual leave.
The ECJ said that there should not be a deterrent to taking holiday – workers who take annual leave must be in a comparable position to when they are working and they must not lose out by taking leave.
This decision will have wide-ranging implications for many employers – but it also raises more questions than answers. Now that the ECJ has given its judgment the case goes back to the UK for the Tribunal to decide whether the Working Time Regulations is compatible with the decision. It may be that the Working Time Regulations need to be amended to deal with this, as a 12 week averaging approach does not solve the problem.
There are so many different commission and incentive arrangements out there that it is difficult to see how one approach can be devised to take account of different lead times, peak/trough sales periods etc. Employers will also want to avoid employees being able to play the system by taking holiday at times that will benefit them most financially.
We await more guidance from the courts, but in the meantime employers need to consider the implications for their organisation, i.e. what claims they could face from whom and how much they could be worth. It is also a good idea to consider commission or incentive schemes and look into what steps would be needed in order to change these in future once the law in the UK becomes clearer. We will of course update you on any future developments and are happy to assist with your risk assessments – please give us a call if you would like to discuss this further.
If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).