Holiday pay uncertainty ended in employees’ favour
The Court of Appeal on March 1st refused British Gas permission to appeal to the Supreme Court in the holiday pay case of British Gas v Mr Lock. The Judges said “the Working Time Regulations are properly to be read purposively to give effect to the CJEU (Court of JUstice of the European Union) ruling in Lock which means holiday pay must take into account overtime and commission earnings.”
Crucially, we now know that representative results-based commission and non-guaranteed overtime (i.e. overtime which workers are contractually obligated to perform) must be included in the calculation of holiday pay for the first 4 weeks of holiday under the Working Time Regulations which normally grant full time employees 28 days including statutory holidays. Furthermore, this is a right which is applicable now and should be included in your contract of employment with your employees.
In terms of the reference period for averaging pay including results-based commission, the parties in this case accepted that the provisions in the Employment Rights Act 1996 averaging pay over a 12 week period should apply. This will normally be the case unless there are special seasonal adjustments, in which case a longer reference period would be required
However, the position with respect to truly voluntary overtime (i.e. overtime which workers are not contractually obligated to perform) remains unclear. Although there are a number of first instance ET decisions which do suggest that truly voluntary overtime should be included, there is no binding UK authority on the point.
Please review your holiday pay structures to ensure you conform to this ruling. You should also be aware that you could be liable for additional payments for the underpayment of payment for holidays for up to 2 years.
Although a hard Brexit would enable the Government to change this rule in the future, the Prime Minister’s commitment to maintaining workers’ rights makes this unlikely in the short term
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