Update summarises our recent client seminar on the major new holiday pay case of Lock v British Gas.
The European Court of Justice (“ECJ”) held that holiday pay under the Working Time Directive cannot be calculated based on basic salary alone where a worker’s remuneration includes commission determined with reference to sales achieved. This is because if the commission is not taken into account, the worker will be placed at a financial disadvantage when taking statutory annual leave, since no commission will be generated during their holiday period. In such circumstances, the ECJ considered that a worker might be discouraged from taking holiday, which would be contrary to the Directive’s purpose.
Although the actual case of Lock only dealt with commission, the underlying rationale of the ECJ judgment is of greater significance – in its words “remuneration paid in respect of annual leave must, in principle, be determined in such a way as to correspond to the normal remuneration received by the worker”.
The impact of this judgment is expected to be huge as many workers get far more than basic pay (e.g. overtime, bonuses, standby payments) and historically contracts have said that is the only element that holiday pay needs to cover.
The risk will be most acute in respect of long-serving employees who could potentially be owed years of back pay in respect of the underpayments.
Given the potential scale of the liabilities facing some businesses it therefore seems probable that there will eventually be significant numbers of holiday pay claims over this issue. For instance, Caspar Glyn QC of Cloisters has described the issue as being the “future area of litigation for the next few years”.
If you are an employer with employees who receive supplementary payments such as commission and overtime we would strongly recommend that you get in touch with your usual contact at Joelson Wilson in order to discuss to what extent this might be an issue for your business.
Important initial steps to take will be as follows:
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This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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