The Court of Appeal has today overturned an Employment Court decision which found that incentive payments by Metropolitan Glass and Glazing Limited (Metroglass) that were conditional on meeting performance targets should be included in holiday pay calculations, even though the Metroglass scheme was expressly “discretionary”.
The ruling will be welcomed by employers with bonus schemes similar to Metroglass’s.
But the result might not hold for too much longer, as the Holidays Act taskforce has recommended that all cash payments made to employees (regardless of discretion) be factored into holiday pay entitlements.
The Court of Appeal decision
The Court of Appeal found that the key element of the definition of gross earnings was whether or not the payment was one that the employer was contractually bound to pay.
By overlooking this, the Employment Court had acted contrary to legislative history and to the wording of the Holidays Act itself as, had the intention been to include all remuneration for the job in calculating holiday pay, the Act could easily have stated that – but it did not.
The Court of Appeal agreed with Metroglass that any payments made under its bonus scheme were discretionary as the scheme expressly stated that Metroglass retained a discretion not to make any bonus payment, even where the conditions of the scheme had been met.
While finding that the bonus was “neither guaranteed nor conditional”, the Court also confirmed that the discretion would have to be exercised in good faith and that a failure to do so could be grounds for a personal grievance.
The Court agreed with the Employment Court that the fact that the scheme sat in a separate document outside of the individual employment agreement was irrelevant and that the critical question was whether it had contractual force and whether it was contractually binding on Metroglass.
Any application to the Supreme Court for leave to appeal must be lodged within 20 working days.
The Court of Appeal judgment affirms what had been the understood status quo before the Employment Court’s bombshell decision. But, as we noted at the start, the law may be about to change as a consequence of the Holidays Act review.
There will be an opportunity to make submissions on the Bill. We will continue to monitor developments in this area and will be pleased to assist should you wish to make a submission.