Legal Update February 2021

The following case concerns the calculation of annual leave payments to tour bus drivers who receive commission payments when they sell tourist activities to passengers. This Court of Appeal judgment interprets section 8 of the Holidays Act 2003 (the Act) to assess whether the bus drivers’ commission is or is not “a regular part of the employee’s pay” under the Act.

Labour Inspector v Tourism Holdings Limited [2021] NZCA 1

Tourism Holdings Limited (Tourism Holdings) operates hop-on-hop-off guided bus tours throughout New Zealand. They employ ‘driver guides’ to drive the buses and act as tour guides. Part of their role is to sell additional tourist activities to the passengers while on tour. The bus tours vary in length and therefore, the number of additional activities a driver guide sells will vary.

Driver guides are paid weekly at a daily rate while on tour. They are also paid commission for selling tourist activities, with different processes for calculating the commission depending on whether the activities are with Tourism Holdings or with third party providers. Driver guides do not receive commission with their weekly payment but as a lump sum for each tour once the tour is finished.

Under the Act, an employer must calculate payment for annual leave by comparing the employee’s ‘average weekly earnings’ to the employee’s ‘ordinary weekly pay’ and pay the higher amount. This means that both average weekly earnings and ordinary weekly pay must be determined, both defined in the Act.

Average weekly earnings is a calculation of 1/52 of gross earnings earnt in a year and this will include any commission payments made throughout that year. Ordinary weekly pay is generally the amount the employee receives under their employment agreement for an ordinary working week.

But where it is not possible to determine an employee’s ordinary weekly pay, likely because their work patterns are irregular, section 8(2) of the Act provides an alternative way to calculate ordinary weekly pay using a four-week averaging formula. The formula divides by four, the employee’s gross earnings over the 4 weeks prior to the end of the pay period before leave is taken. However, the formula also subtracts any ‘productivity or incentive-based payments that are not a regular part of the employee’s pay’ from the gross earnings amount.

Tourism Holdings argued that commission should be subtracted from the calculation because payment of commission was not regular.

The Court identified the key issue as whether the commission payments made to the driver guides were ‘a regular part of the employee’s pay’ and therefore had to be included in the calculation. The Court interpreted the word ‘regular as meaning ‘substantively regular’ or ‘temporally regular’. The Court defined ‘substantively regular’ to mean being made systematically and according to rules, and ‘temporally regular’ to mean being made uniformly and in a timely manner.

The Court concluded that the commission payments were ‘regular’ by both definitions. The commission payments were found to be ‘substantively regular’ because the employment agreements contained rules about how the commissions were calculated and paid. The commissions were also ‘temporally regular’ because they were paid in the week after each bus trip concluded.

The Court therefore applied a broad definition of ‘regular’ and it would seem that many commission payments could qualify as regular under one of the two definitions or both.

This case summary was prepared by Peter Kiely, Partner, and Layla Darwazeh, Solicitor, Kiely Thompson Caisley.