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Metropolitan Glass & Glazing v MBIE

A recent Court of Appeal judgement has overturned the decision of the Employment Court in Metropolitan Glass and Glazing v MBIE, ruling that where a bonus arrangement provides discretion over whether payment will be made or not, it does not form part of ‘gross earnings’ to be factored into the calculation of holiday pay under the Holidays Act 2003 (Act).

The wording of any bonus provision will always be key to deciding if a payment is truly discretionary, and here, the terms and conditions of the incentive scheme expressly stated that any payments were at the employer’s sole discretion and were not guaranteed, even if set KPIs were met. The incentive scheme was not a term of the employment and sat outside the employment agreement in a separate document.

The Court of Appeal commented that “Metropolitan did more than just label its scheme discretionary. It included an express term that even if all the conditions were met, it retained discretion not to make any payment… in our view, being neither guaranteed nor conditional the payment would still retain the character of a discretionary payment for the purposes of the Holidays Act”.

The Court of Appeal also confirmed that simply putting incentive schemes into separate documents outside the relevant employment agreement did not mean they were then automatically discretionary, as “employment agreement” is broadly defined.

Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment

A recent Supreme Court judgement has confirmed that “regular payments”, which must, per the Act, be included in the calculation of gross earnings, is fact specific but informed by the frequency of payments made.

This case concerned the calculation of holiday pay for a tour company bus ‘driver guide’ whose work pattern was dictated by the length of tours, with commission for activities sold calculated and paid at the end of the tour. Commission was not always guaranteed, but in this instance occurred 29 months out of the 30 on record.

The Supreme Court determined that the commission payments paid to the bus driver were regular payments and therefore should be included in calculating holiday pay per the Act

Message for Employers

We recommend reviewing any commission or bonus payment arrangements in light of these decisions, to ensure compliance with the Act.  The Holidays Act Working Group has, however, recommended changes which the Government has indicated will be enacted in law, we expect next year, which will affect holiday pay calculation.  We discussed those changes here.  Our team can help with any queries about the Act.

Disclaimer: We remind you that while this article provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.