A recent decision of the Employment Court makes it clear that in certain circumstances commission income must be included in the calculation of holiday pay. The Court rejected the argument that the employer had effectively already paid the correct holiday pay by separately paying commission on a monthly basis.
Schollum & Hastings v Corporate Consumables Limited
The Employment Court has held that Corporate Consumables Limited have been incorrectly paying holiday pay, by failing to include commission payments as part of the employee’s remuneration when calculating the holiday pay. It held the employer liable to pay the unpaid holiday pay.
In an interesting twist based on the facts of that particular case, the Court held that Ms Schollum could claim back for the 20 years of her employment and Mr Hastings for the 15 years of his employment despite s.142 of the Employment Relations Act limiting payments to a period of 6 years. On these particular facts it was held that the employer had agreed to make the payments back to the time the liability arose i.e. 6 years from the date the claim was filed.
Evidence was called on behalf of Corporate Consumables to the effect that if the Court adopted the interpretation the two employees were pursuing, then the employees would receive an unjustified windfall or “double dip”. The Court rejected that argument on the basis of applying the interpretation of the relevant section in the Holidays Act.
It would be prudent to immediately seek a review of:
- Your contractual provisions as to the payment of commission.
- The timing of the payment of commission in light of the contractual provisions.
- Potentially consider altering either the wording of the payment of the commission clause or the timing of the commission or both subject to your ability to do so for existing staff.
- Align your Payroll system to any new arrangements.
We understand that the decision of the Employment Court may be the subject of an appeal. It is not unusual for Employment Court decisions to be overturned by the Court of Appeal. Even after the Court Appeal has done so, the Supreme Court can overturn the decision of the Court of Appeal. With that in mind, it may be worthwhile to undertake the reviews and formulate possible changes without implementing those changes until at least it is known whether an appeal will be filed. Current indications suggest that an appeal is likely to be filed with the Court of Appeal.
The only challenge in respect of the above is that any potential liability arising from current incorrect practices (taking into account the Employment Court’s decision) continue to accrue. A premature decision to amend these practices however could see you paying money that a subsequent Court decision may mean you did not need to pay.