Judgment Relating to Employee Commissions and Holiday pay
Recently, New Zealand’s Employment Court gave transparency to an earlier untested area of the Holidays Act. In the case of, Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment  NZ Emp C 87, the Employment Court examined how the definition of ordinary weekly pay demands an employer to treat commissions when calculating holiday pay.
As per the Holidays Act, when an employee takes a paid annual holiday, they are entitled to be paid the greater of their:
- Ordinary weekly pay; or
- Average weekly earnings for the previous 12 months (starting from their last pay period).
Ordinary weekly pay includes productivity or incentive-based payments (such as commission) which are a “regular part of the employee’s pay”. This case was mainly concerned with these words – “a regular part of the employee’s pay”.
Tourism Holdings employs bus drivers, who earn commission on the sale of activities they book for passengers. The dispute between the Labour Inspector and Tourism Holdings concerned whether commissions earned in this manner should be considered a ‘regular part’ of the drivers’ pay for an ordinary working week. The company says the drivers’ commissions are not to be included in the calculation under, because the amount earned in this way is not a “regular part” of her pay for an ordinary working week. If they are a ‘regular part’ of the driver’s pay, they are required to be included when calculating holiday pay.
Tourism Holdings argued that commissions earned by drivers were excluded from the statutory definition of ‘ordinary weekly pay’, and said that the definition was intended to apply to what the driver was entitled to under the employment agreement for that ordinary working week and that did not apply to the commission which was earned in a different way.
The Labour Inspector argued that:
- The drivers are ‘regularly’ paid commissions earned on trips;
- That no period of time is expressly given in the Holidays Act against which the regularity of commission payments can be measured; and
- That Parliamentary intention, and a ‘balanced and harmonious approach to the formula” was a period of at least 4 weeks when considering commissions earned.
The Employment Court held that the designed meaning of ‘regular’ within the Act is what is received under the employment agreement for an ordinary working week. The word “regular” used in the particular subsections is not defined in the Act and could give rise to ambiguity.
What is regular could be those items of pay routinely or commonly featuring in the employee’s pay regardless of when they were earned, or those items that are earned and have become payable under the employment agreement during the working week.
The text of the particular section defining “ordinary rates of pay” indicates that what is to be ascertained is the employee’s ordinary weekly pay for an ordinary working week so that holiday pay can be calculated and paid. What is to be included, and excluded, from that calculation is designed to enable a calculation representative of an ordinary working week. Commonly “regular” can mean systematic, or something acting or done or recurring, uniformly. Tourism Holdings’ drivers commonly received pay including commission, but that was earned over varying intervals of time and required reconciliation after each trip (which could extend well beyond a week), and as such did not constitute the ‘regular’ type of payment contemplated by the Act.
Thus, it was decided and agreed by the employment court that, it was not required under the terms of this driver’s employment agreement, and by the operation of s 8(2) of the Act, to include in the calculation of her ordinary weekly pay commission payments received by her during the four-week period preceding her annual holiday.