Category Archives: Bear Scotland Ltd v Fulton and Baxter

Holiday Pay Must Include Commission

FG Solicitors - Holiday Pay CommissionSUMMARY: The Employment Tribunal has decided that, by adding a new provision, the Working Time Regulations 1998 (“WTR”) can be interpreted so that holiday pay must take into account commission.

Background

Mr Lock received a basic salary and was entitled to benefit under a commission scheme where payment was made for sales achieved.   Whilst on holiday, Mr Lock’s rate of pay was calculated with reference to his basic salary; he was also paid commission earned during previous weeks.  He was not however able to generate commission during his period of annual leave, so when he returned to work he received reduced remuneration. Mr Lock brought a claim for unlawful deduction of wages for unpaid holiday pay in the employment tribunal; he argued that holiday pay should be calculated to include all payments he would normally receive.  As the exclusion of commission from the holiday pay calculation appeared to be inconsistent with European law, the Employment Tribunal referred the matter to the Court of Justice of the European Union (“CJEU”).

Decision of the CJEU

For those of you who were keeping pace with the issue of what payments other than basic pay should be included in the calculation of holiday pay, you will remember that the CJEU concluded that Mr Lock’s commission payments must be taken into account when calculating holiday pay for the first 4 weeks of the 5.6 weeks statutory holiday period.

The following were key in relation to the CJEU coming to its decision: Mr Lock’s commission payments were directly and intrinsically linked to the performance of the tasks he was required to carry out; during annual leave Mr Lock could not generate any commission and, as a consequence, on his return would receive reduced remuneration; and the financial impact of this on a worker may deter them from taking their annual leave.

The CJEU referred the case back to the Employment Tribunal to consider how the decision sits alongside our domestic law.  Basically the tribunal would have to consider how holiday pay should be calculated.

Decision of the Employment Tribunal

The Employment Tribunal has concluded that the WTR can be interpreted so that commission must be included in holiday pay.  In order to arrive at this position the WTR should be read as if they contain a new Regulation 16(3)(e), which effectively confirms that, for the purposes of calculating holiday pay, a worker with normal working hours whose pay includes commission or similar payments shall be treated as having remuneration which varies with the amount of work done.

What Does this Mean for Employers?

In terms of calculating holiday pay, this means that a week’s pay for the purposes of calculating holiday pay will be calculated using the employee’s average remuneration to include commission payments over the 12 weeks before the calculation date. This calculation method will only apply in respect of the first four weeks’ leave not the whole of the 5.6 weeks maximum statutory holiday entitlement.

Any commission previously earned which falls due whilst the employee is on holiday will also need to be paid. 

Case

Mr S J Lock (and others) v British Gas and others ET case number 1900503/2012 & others 

Contact Details

For more details about this decision and what payments should be taken into account when calculating holiday pay please contact:

 fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Holiday Pay & Overtime – Next Steps

Holiday pay & overtimeSUMMARY: Employers need to consider their next move in the holiday pay saga following the EAT’s recent decision that non-guaranteed overtime must be included in holiday pay.

Reflecting on the highly publicised recent decision of the Employment Appeal Tribunal employers who have not accounted for overtime payments in holiday pay are probably wondering what their next move should be.

Current position

For those who missed the news, the current position in terms of overtime and calculating holiday pay can be summarised as follows:

  • Where the worker works normal working hours, overtime pay arising from the following types of overtime will have to be included in the holiday pay calculation:
  • Guaranteed (compulsory) overtime in relation to the full 5.6 weeks statutory minimum holiday entitlement.
  • Non-guaranteed overtime where the employee is required to work. This applies to the minimum 4 weeks statutory minimum holiday entitlement. This does not apply to the additional 1.6 weeks’ leave under which only guaranteed (compulsory) overtime is taken into account in respect of workers who work normal working hours – see previous bullet point. This principle is subject to appeal – see below.

No definitive conclusion has been reached about voluntary overtime. This is overtime where an employer does not have to offer work and if offered, an employee does not have to accept it. It is therefore open to debate in these circumstances if voluntary overtime it should be included in the calculation. If however there is a settled pattern over a sufficient period of time it may have to be taken into account. An employer’s day-to-day practices in relation to voluntary overtime will be key to identifying if there is a potential liability; employers should keep this under review and if in doubt further advice should be taken.

Normal working hours arise where a worker’s contract sets out a fixed number of hours in a week or specific period.

  • Where there are no normal working hours, pay will be calculated as an average of all the sums earned in the previous 12 working weeks, which will include any overtime payments.

Before the decision, employers should have in any event already been accounting for overtime payments in holiday pay, unless the overtime was purely voluntary where there are normal working hours. Since the decision, overtime payments for non-guaranteed overtime where there are normal working hours must be accounted for.

Grounds of appeal

The matter does not end here as the Employment Appeal Tribunal (“EAT”) has granted leave to appeal to both the employers and the employees. If the further litigation does follow, the Court of Appeal will be asked to consider on behalf of the employers whether the EAT was right to conclude that payments for non-guaranteed overtime should be taken into account when calculating holiday pay where a worker works normal working hours.

The EAT in its decision also limited a workers ability to bring backdated claims for underpaid holiday. This means that workers cannot use each shortfall in holiday pay as part of a series of deductions for the purposes of an unlawful deduction of wages claim where a period of more than three months has elapsed between the deduction (underpayment). The EAT has also granted leave to the employees to appeal this point, noting that it is “arguable as well as in the public interest”.

An uncertain position

There is therefore still some uncertainty as to what the final position will be in terms of whether non-guaranteed overtime where there are normal working hours should be accounted for, and whether concerns about significant retrospective claims for unpaid holiday will again become a live concern.

Employers should assess the risk

What an employer chooses to do in response to this decision will depend upon the level of financial risk in relation to historical and future claims and what the employer’s tolerance would be to that risk.

Before taking any action, a sensible starting point would be to work out the size of the issue in relation to overtime; this would also be a good time to ensure other supplementary payments such as shift allowances, attendance bonuses or commission are also being treated correctly.

Employers can then decide whether they need to make accruals for possible claims and whether they need to or want to make changes.

Some employers may choose to do nothing and wait to see what happens in relation to the appeal. Our view however is that even if the decision is to do nothing this should be on an informed basis, made only following a full legal compliance and financial risk assessment. The worst case scenario for employers is that the Court of Appeal will uphold the EAT’s decision about the inclusion of non-guaranteed overtime being accounted for in holiday pay and that the limit put on backdated claims will be removed.

Cases

Bear Scotland Ltd v Fulton and Baxter

Hertel (UK) Ltd v Woods and others

AMEC Group Ltd v Law and others

Contact Details

For more details about how to deal with the issue of holiday pay, overtime payments and other supplementary payments please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.

STOP PRESS: Overtime = Holiday Pay

FG Solicitors Stop PressEmployment Appeal Tribunal (“EAT”) Hands down Judgment in Relation to Holiday Pay

Broadly, the appeal involves a determination of the meaning of ‘normal remuneration’ in a number of cases. The European Directive provides that employees are entitled to be paid ‘normal remuneration’ during holidays to which they are entitled under EU Law. This has been interpreted to mean their typical average pay and not only basic pay.

By comparison, the UK law entitles employees with normal working hours to receive basic pay only during any period of holiday.

The conclusion of the EAT in this appeal is that employees are entitled to be paid their average earnings. So by way of example, overtime payments would be accounted for in calculating an employee’s holiday pay.

Potentially, a significant number of UK workers, who have historically received basic pay only, may now have claims for unlawful deduction of wages given that the employers’ appeal in this case has failed.

The employers’ appeal to the EAT has however succeeded on the issue of how far back employees can claim. The position now appears to be that if there is a gap of more than 3 months in any claimed series of deductions, the Employment Tribunal will lose its jurisdiction to hear claims for the earlier deductions.

More to follow…

Cases:

Bear Scotland Ltd v Fulton and Baxter

Hertel (UK) Ltd v Wood and Others

Amec Group Ltd v Law and Others

Please contact FG Solicitors for further information on what employers should be doing now.

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice. 

FGazette October 2014

Welcome to the latest edition of FGazette! The quarterly newsletter of FG Solicitors – Lawyers for today’s employers.

With changes in the employment sphere showing no signs of slowing down as the date for a general election in May 2015 edges nearer we present the October edition of the FGazette.

This month’s edition looks at Data Subject Access Requests, Family Friendly Working Hours, Restrictive Covenants and also features a Q&A on the launch of the Government’s Health and Work Service.

If you have any problems viewing this link, please contact us on 01604 871143 or fgmedia@fgsolicitors.co.uk