Firms ‘could face claims for back pay’

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BRITISH businesses should be braced for the consequences of a potentially “damaging and costly” ruling from the European Court of Justice, it was claimed today.

The ruling could lead to firms who pay commission facing claims for back pay, at a time when the economy is starting to grow after a lengthy slump.

Andrew Rayment, an employment partner at Walker Morris, said the European Court of Justice’s decision on the calculation of holiday pay for commission-based workers is likely to have an impact on many employers in Yorkshire. The court has decided that the Working Time Directive requires employees’ holiday pay to include both basic salary and commission. According to Mr Rayment, the case was brought by a salesman who received a basic salary with variable commission, based on sales he achieved, which was paid in arrears. He could not earn commission while on holiday and he brought a claim in the employment tribunal for his “lost” holiday pay arguing that he was financially worse off for taking holiday. The court upheld his claim, noting that a worker’s statutory holiday pay should not be limited to basic salary where commission is a part of their remuneration package.

Mr Rayment, said: “This decision has significant implications for employers who operate commission based pay structures, and raises the spectre of claims for back pay.”

John Robinson, a partner in Leeds-based Clarion’s employment team, said: “There remains uncertainty as to whether businesses will be liable for this payment as we don’t yet know whether the employment tribunals will interpret UK law in accordance with this decision. If they do, then this may be a very unpopular decision among British businesses who could see this as further damaging and costly interference from Europe, not something the Government is likely to welcome in the current political and economic climate.”

Solicitor Lewis Goodwin of Harrogate-based McCormicks said: “This will be welcome news for employees, but quite the opposite for employers. Any employer who operates a commission-based pay structure should take this opportunity to review their employees’ holiday pay entitlements.”