An update on the calculation of statutory holiday pay

We are now four months on from the European Court of Justice’s (ECJ) decision in Lock v British Gas and no nearer to an understanding of how holiday pay should be calculated for recruitment consultants in the UK who earn commission. The ECJ held in Lock that employees who are paid contractual commission determined with reference to sales achieved are entitled to statutory holiday pay that includes a payment in respect of commission. A number of questions arise from that decision, including whether domestic law has correctly implemented the European Working Time Directive. More importantly for recruitment businesses, it remains unclear in what circumstances the obligation to include commission in holiday pay arises, and how such a payment should be calculated. Lock will be returning to the Tribunal on 20-21 October 2014 and potentially again in 2015 and we hope that that decision will clarify the position for the recruitment sector.

While we await further clarification, we had hoped that a series of cases on appeal to the Employment Appeal Tribunal (EAT) over the summer would provide a further indication of what to expect. These cases address the related issue of whether overtime should be included in the calculation of holiday pay. Neal v Freightliner and Elms v Balfour Beatty have now settled out of court, and so we await the decision in Fulton v Bear Scotland and Wood v Hertel which were heard together in the EAT between 30 July and 1 August 2014. Unfortunately the EAT’s judgment has been delayed and we now understand that further written submissions have been put forward, meaning that it is unlikely that a judgment will be handed down before next month.

In the meantime, recruitment businesses are faced with the dilemma of whether or not to take action to try to mitigate the risks in relation to their own consultants.  By increasing the rate of holiday pay now to account for commission, some employers hope that they will eradicate the risk of staff being able to claim a series of unlawful deductions from holiday pay that could trace back to the advent of the UK Working Time Regulations in 1998.  However, without knowing how, and in what circumstances, courts will decide that commission calculations should be made in respect of holiday pay, this does not guarantee protection from claims.  If it turns out that the employer has been overly generous in its calculations, they may have created a custom and practice that cannot easily be changed in the future.  Conversely, if the employer pays even just slightly less than the courts eventually decide they should have paid, that employer will not have succeeded in breaking the series of deductions.

We, along with all of our clients in the recruitment sector, look forward to the EAT’s judgment in October and hope that it brings some clarity.

For more information, or to discuss how this issue could affect your business, please contact Jennifer Millins.

Click here to find out about Mishcon de Reya’s Recruitment Services Group.