Telecoms companies could face a bill for millions of pounds in unpaid commissions following the Employment Appeal Tribunal’s decision last week to include overtime in holiday payments.
The Federation of Small Businesses warned this week that the ruling sets a precedent for a similar decision on a claim for commissions to be included in holiday pay. The Employment Appeal Tribunal (ETA) is set to rule on the case in February next year. The case in question is Lock v British Gas Trading Limited. Lock was a sales consultant at British Gas Trading whose commission made up around 60% of his total pay. He argued he suffered financially in the months following holidays because he was unable to generate commission for the period he was away.
The British Court took the case to the European Court of Justice (ECJ), which ruled earlier this year that under working time regulations, workers’ holiday pay should include commission a worker would normally earn. The ECJ did not clarify how the holiday pay should be calculated, leaving it to national courts to decide on the basis of rules already set out in European case law and the working time directive.
Following last week’s decision by the Tribunal on the inclusion of overtime in holiday pay, the Federation of Small Businesses is warning the Tribunal is likely to rule that an average of previous commissions should be included in workers’ holiday pay. This will also open the door to backdated payments of unpaid commissions, which could go back up to six years.
The FSB is warning businesses to prepare for the additional costs these additional payments will bring, with some experts warning it could add up to 4% onto companies’ wages bills.
John Allan, FSB national chairman, said businesses are in limbo waiting for the ECJ’s decision in February on whether the new rules will include backdated payments.
‘It has the potential to be very damaging to small businesses. This presents a real risk of small firms being forced to close down if faced with retrospective claims,’ he said.
‘Clearly it would be desperately unjust to expect businesses to pay retrospective compensation for how they calculated holiday pay when they were fully compliant with the law as it was understood at the time.’
He added: ‘The FSB has been appointed to a Government taskforce to examine this issue and will be fighting hard for small businesses to be insulated from the uncertainty and legal risks this ruling brings.’
Dealers slammed the ruling this week. James Phipps, CEO of Excalibur, said: ‘This is an extra cost that we had no way of planning for this because we had no way of knowing what the ruling would be at the time. So this will have an effect on the way we budget and forecast and it will have implications on our recruitment.’