British Gas has lodged an appeal with the Employment Appeal Tribunal over what elements of commissionable pay fall within the calculation of holiday pay.
The appeal comes from the employer and its law firm Eversheds after an employment tribunal ruling in March found that commission must be included when employers calculate holiday pay.
In the case of Lock v British Gas, the tribunal ruled that the Working Time Regulations should be read to ensure commission is brought into the calculation for holiday pay in line with the Working Time Directive.
This could potentially push up pay bills for employers that use commission schemes as a regular part of how they remunerate staff.
British Gas is appealing the decision on the basis that non-guaranteed overtime and commission are dealt with under separate provisions, so the ET incorrectly concluded that the Bear Scotland case on overtime impacted the outcome of the Lock case. And, even if Bear Scotland was applied correctly, British Gas will argue that the EAT in Bear Scotland incorrectly concluded that UK domestic legislation can be interpreted to give effect to EU law.
Ian Rose, pay, performance and risk partner at PricewaterhouseCoopers, said: “The appeal casts further uncertainity over what elements fall within the calculation.
“But it is important to remember that the current ruling is still law and will remain so unless the EAT overturns the decision at appeal.”
The ruling follows last year’s judgement by the Court of Justice of the European Union in the case of Lock v British Gas, which ruled that employees must receive their normal pay during periods of holiday in a manner that is consistent with the way they are paid during working hours.
This latest ruling follows three cases that the Employment Appeal Tribunal ruled on last year.
It means employers need to consider commission and overtime when calculating holiday pay.
The change in legislation is expected to affect future holiday pay claims and can also be brought on backdated claims.
Jean Lovett, employment partner at Linklaters, said: “The courts have decided that some overtime and commission should, in principle, be included in holiday pay calculations, but until we have more detail as to the precise types of payments covered and how this applies in practice, it is difficult for employers to make any changes to holiday pay.
”On the plus side, employers can take comfort that extensive backdated claims of holiday pay should not be possible.”
What employers must consider when calculating holiday pay:
- An employee who dies with any outstanding holiday pay should be paid this after their death, the European Court of Justice ruled in June 2014.
- Commission payments must be taken into account when calculating holiday pay.
- Overtime, including guaranteed, compulsory and non-guaranteed overtime, should also be included in holiday pay calculations.
- Potential bonus payments could be included in holiday pay calculations.
- However, past claims will be limited to two years following the government’s decision to introduce a cap to protect employers from the impact of backdated claims and give workers certainty on their rights.