U.K. Employment Law Update

Holiday pay, obesity, contractual effect

By ByAlex Denny, Victoria FitzGerald and Emma Vennesson Aug 6, 2014

Significant Changes to Holiday Pay for Commissioned Employees ‘Likely’

The European Court of Justice (ECJ) has considered whether commission payments should be taken into account when calculating holiday pay in the recent case of Lock v British Gas Trading Limited (C-539/12).

The ECJ has ruled that where a worker is paid commission based on sales they make, their holiday pay must include both their basic salary and the average commission, calculated over an appropriate reference period, the employee would have received if they were working.

The case has now been remitted to a U.K. Employment Tribunal to determine whether the U.K. Working Time Regulations can be interpreted in a way which is consistent with the court’s decision and if so, what the “appropriate reference period” would be for calculating the commission element. There are also two other cases currently in the U.K. courts on a related issue, namely whether holiday pay should include overtime payments the worker would otherwise normally receive (Neil v Freightliner and Fulton v Bear Scotland Limited), and a judgment is expected on these cases in the next couple of months.

Although the position is not fully settled, it seems likely that there will be significant changes ahead for employers who currently provide holiday pay at basic salary rate to employees whose remuneration consists of both commission and basic salary. The impact may be even greater if employees are allowed to bring claims for arrears of pay too. For now, we would recommend waiting for the judgments rather than trying to second guess the outcome, but employers should be prepared to reconsider their policies quickly if necessary.

Is Obesity a Disability?

The top legal counsel of the European Court of Justice (ECJ) has given his opinion on whether obesity is a disability for the purposes of European Union (EU) discrimination law in the case of Karltoft v Municipality of Billund (C-354/13).

Karltoft worked as a child-minder in Denmark. He weighed approximately 350 pounds and was medically considered morbidly obese. His employer dismissed him after 15 years’ service, claiming that he could no longer perform his day-to-day duties (such as tying a child’s shoelaces). He brought a discrimination claim in a Danish court, alleging that he was dismissed because he was obese. The Danish court referred two questions to the ECJ: (i) whether there is a free-standing prohibition against discrimination on the grounds of obesity; and (ii) whether obesity is of itself a disability.

The Advocate General’s opinion on the first question is that there is no such free-standing prohibition. On the second question, his view is that obesity of itself is not a disability; however, where the obesity is so extreme that it hinders a person’s full and effective participation in professional life on an equal basis with other workers, then it could amount to a disability, in which case that person would be protected by EU disability discrimination law.

Although this opinion is not binding, it is likely that it will be followed by the ECJ (whose ruling is expected in the next 4-6 months). If it is, this could have a significant impact on the EU-wide obligation on employers to make reasonable adjustments to accommodate disabled employees, particularly in light of the increasing levels of obesity in Europe.

HR Letter Had Contractual Effect

In Hershaw v Sheffield City Council UKEAT/0033/14/BA, the Employment Appeal Tribunal (EAT) considered whether a grievance outcome letter from an HR consultant setting out better terms of pay for the aggrieved employees was contractually binding on their employer.

The claimants were employed as market patrol officers by Sheffield City Council. They raised a grievance following a review of the council’s pay and grading structure. An HR consultant, who had authority to communicate the grievance outcome but not to make any decision about terms of pay, wrote to the claimants informing them of the council’s decision to place them on a higher grade with matching higher pay. The council, however, did not increase their pay and alleged that the letter was a mistake. The claimants brought proceedings in respect of the higher pay. The EAT held that the letter constituted a contract which was binding on the council because, viewed objectively, it had been intended to set out the council’s decision in relation to the higher pay, and had been sent by someone held out by the council as having authority to do so. The claimants had accepted these new terms of pay simply by continuing to work as they had done previously; they had not been required to do anything else. However, the question of whether this contract was void because the claimants knew, or ought to have known, that the letter was a mistake was crucial to the final determination of the case and was remitted to a fresh Employment Tribunal.

This case serves as a useful reminder to employers to be very careful when communicating with employees, in particular about pay. Employers would be well-advised to train their managers in this regard to avoid unintentionally creating contractual ties.

Alex Denny is a partner, Victoria FitzGerald an associate and Emma Vennesson an associate in Faegre Baker Daniels’ London office.

Copyright 2014 © Faegre Baker Daniels LLP. All rights reserved.

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