European ruling on holiday pay could prove costly for UK businesses

A ruling on a dispute between a sales agent and British Gas could have set a costly precedent for UK employers.

The agent was paid for securing sales. His income was made up of about 40% basic salary and 60% commission. He only received holiday pay equal to his basic wage. He claimed that because commission was such a major part of his income, an average should have been calculated and included in his holiday pay.

The European Court of Justice agreed with the agent, and ruled that British Gas had breached the Working Time Regulations.

Lawyers believe the case could open the door for thousands of employees to take action and claim back money they should have received.

The European Union’s Working Time Directive was introduced into British law in 1998, but many firms have only paid employees a basic wage during their holidays, as opposed to their actual average income.

This case only refers to commission payments, but the Employment Appeal Tribunal (EAT) is currently considering cases which will determine whether other forms of income should be taken into account when calculating holiday pay.

These could include overtime, bonuses, as well as any allowances for anti-social hours or shift work.

The claims could potentially be backdated to 1998, when the law came into force in Britain.

The settlement of underpayments to thousands of employees dating back 16 years would put many businesses in the UK under severe financial pressure. Adjustments to future holiday payments are expected to increase labour costs by about 4%.

We shall keep clients informed of developments.

Please contact Robert Bedford if you would like more information about the issues raised in this article or any other aspect of employment law.