“We’re all going on a summer holiday…but at what cost?”
In our January 2015 briefing ("Calculating Holiday Pay – Lock down what you should be paying"), we considered the potential impact for employers in Ireland of the European Court of Justice ("CJEU")'s decision in ZJR Lock v British Gas Trading Limited (May 2014) (where it was held that holiday pay must include any sales commission payments) and the UK decision in Bear Scotland v Fulton (November 2014), (where it was confirmed that required non-guaranteed overtime payments should also be taken account of when calculating holiday pay entitlements).
With summer holidays fast approaching, coupled with the recent appeal of the Lock case (considered in more detail below), the question of what to pay employees during their vacation is more topical than ever.
What happened next?
On 25 March 2015, following the CJEU decision, the UK Tribunal in Lock decided that remuneration paid in respect of a worker's annual leave should be the "normal remuneration" received by the worker with normal working hours whose remuneration varies with the amount of work done. From a practical perspective, this calculation would consist of the average of pay and, significantly, sales commission, over a specified reference period (to be determined at a later hearing).
Notably, and in line with the approach in Bear Scotland v Fulton, the decision only applies in respect of the statutory holiday entitlement period of 4 weeks such that the calculation of holiday pay in respect of any additional annual leave may, strictly speaking, be treated differently.
What's happening now?
This month British Gas lodged an appeal with the UK Employment Appeal Tribunal (the "EAT") against the UK Tribunal decision in the Lock case on two grounds:
- That the Tribunal incorrectly concluded that the Bear Scotland decision had any application to the Lock case in circumstances where the former addressed non-guaranteed overtime and the latter focused on commission payments; and
- That the Tribunal incorrectly decided that the UK Working Time Regulations should be interpreted purposively to give effect to EU law by reading an amendment into the Regulations to allow for "commission or similar payments" to be included in the calculation of statutory holiday pay.
This appeal is likely to be heard by the EAT towards the end of this year and it is expected that the thousands of claims against employers in the UK will continue to be stayed pending its outcome.
What does this mean for Irish employers?
As set out in our January 2015 briefing, in Ireland the Organisation of Working Time (Determination of Pay for Holidays) Regulations 1997 (the "1997 Regulations") allow holiday pay to factor in "regular allowances or bonuses" but expressly exclude "any pay for overtime". So, until a suitable test case presents itself in Ireland, the question to be asked is whether Irish employers should fall in line with the CJEU position in Lock or should we sit on the fence a bit longer and watch the UK saga unfold further?
As set out above, the UK position remains in a state of flux pending the outcome of British Gas' appeal. However, from an Irish perspective, while we will watch the UK approach with keen interest, it is important to bear in mind that, if and when a test case presents itself, Ireland, in line with the Stringer/Schultz Hoff decisions, may well be required to interpret its 1997 Regulations, which implement the European Union Directive, in accordance with European Union law - and in line with the CJEU position in Lock. Indeed, the recently enacted Workplace Relations Act 2015, at section 86, amends the Organisation of Working Time Act 1997 to bring Irish law in line with the Stringer decision, confirming that an employee's entitlement to annual leave cannot be affected while the employee is absent on sick leave. A similar type of amendment to the 1997 Regulations may well be coming down the track in respect of the calculation of holiday pay to include commission payments (in light of the CJEU decision in Lock).
What should you do?
In the meantime, we would recommend that Irish employers:
- take stock of their own particular circumstances and carry out an audit of the different types of discretionary payments made to workers (including the frequency or regularity of such payments) ranging from sales commissions to discretionary bonuses and all types of overtime payments in order to ascertain which such payments may qualify for holiday pay calculation purposes
- explore, from a payroll perspective, how commission earned can be monitored
- review their contract templates and Employee Handbooks to accurately reflect how holiday pay is calculated, red-circling the 4 week statutory entitlement from any additional annual leave entitlement (although such an approach may ultimately be impractical from an administrative perspective)
- review and consider their approach to authorising annual leave at specified times of the year – i.e. to minimise the risk that employees may seek to take annual leave immediately following a period of receiving significant commission payments
- given the uncertainty in this area, seek specialist legal advice before making changes to the way holiday pay is calculated