21/08/14 - Anyone who pays their employees commission – take note!

Unite the Union are apparently using a recent European decision as an opportunity to drum up new membership by offering to progress claims for holiday pay for those employees who earn commission, or work overtime.  The position had always been that holiday pay is calculated with reference to basic pay.  Everybody understood that and it made sense, but we now have a massive shift – holiday pay should include commission earned   Not only that, but there is the potential that any other additional payments received by the employees should be included in the calculation of a week’s pay.

Whilst that would be newsworthy anyway, the potentially massive consequence is backdated deduction from wages claims.  Certain decent performers will find that the majority of their monthly pay packet is made up of commission.  They will be the ones who stand to gain the most from a claim that there has been a series of deductions in relation to their holiday pay.

Detail

The European Court of Justice decision in the case of Lock –v- British Gas Trading Limited has recently been published.  The implications are potentially massive for those employers who incentivise their employees by sales based commission, however the same could apply to performance related bonus payments, overtime payments, piecework payments, or even shift allowances.

Mr Lock was an internal energy sales consultant. He received a basic salary plus commission on the sales he achieved. The commission made up approximately 60% of his remuneration.  He took holidays and was only paid on the basis of his basic salary.  He regarded this as a breach of his rights under the Working Time Regulations 1998.

The Employment Tribunal felt that this was a serious enough matter to refer it to the European Court of Justice (“ECJ”).  Unfortunately, the ECJ seem to have ignored the reality, which is that if someone is on holiday, then they will be unable to be chasing up leads, securing deals and doing the work that actually earns commission and instead, what they have decided is as follows:-

• A reduction in a worker’s remuneration that is liable to deter him from exercising his right to take annual leave is contrary to the objective pursued by the Working Time Directive.
• Mr Lock’s commission payments are directly (and intrinsically) linked to the performance of the tasks he is required to carry out under his employment contract. Therefore, commission must be taken into account in the calculation of his statutory holiday pay.

In this situation, as mentioned, his commission was 60% of his income.  He has been underpaid his holiday pay since the start of his employment.  He may therefore be able to recover any underpayments that have been made over those years.  On the basis of 4 weeks holiday per year (although the UK legislation is an entitlement of 5.6 weeks, this would be based on the European legislation, being the Working Time Directive, which only insists upon a minimum of 4 weeks per year),  the sums can quite quickly become troublesome.  Multiply that by a large workforce and this could cause some real danger to a lot of businesses.

Although this case related to commission, it applies to “normal remuneration”, which in my view is likely to include performance related bonuses, piecework payments, any performance related pay, shift allowance and overtime.  I am awaiting reports from a couple of overtime cases that were heard in July.

Do not be surprised if there are some fairly creative employees, or legal advisers chasing the next class (and mass) action with the same vigour as those trying to recover your PPI overpayment!

Solution

Although the case was referred back to the tribunal to issue their decision, it is a safe enough bet that they will follow the ECJ, therefore rather than wait for that to happen, then deal with it now.

There are certain preventative steps that you can take now, to minimise the risk of future claims.  If you think your business may be affected by such claims, then please contact me to discuss matters.

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For More Information Contact:
Graham Millar
Mobile: 07841920102
Direct Dial: 0141 530 2023
Email:gmillar@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.