An Auckland company has been ordered to pay $256,000 in holiday pay to a former manager, on top of a multi-million dollar payout.

It's a case that sets a precedent for entitlement to holiday pay on earnings received after the last day on the job.

The Employment Court decision, released today, is being called an important test case that makes it clear employers are obliged to pay holiday pay for gross earnings, including bonuses or commissions received after the job is over.

The court has ordered agricultural tag company Zeetags, now MSG Investments, to pay Todd Howell $256,000 in holiday pay, plus interest, relating to an incentive payout that he received almost a year after he finished work.


Mr Howell had spent 10 years at Zeetags, and was the finance and administration general manager when he was made redundant in November 2011.

His contract included an agreement relating to the company's shares that earned him a taxable payout of $3.2 million - but Zeetag excluded holiday pay.

Zeetag's lawyer Philip Skelton, QC, argued that holiday pay should not apply because the payment was made after Mr Howell's last working day, and therefore should not be included in his gross earnings.

Mr Skelton said the period for gross earnings should not be open ended, and there was no legal requirement to pay holiday pay after employment ended.

But Judge ME Perkins called the argument "illogical" and "incongruous".

"It would be illogical, for instance, that an employee is deprived of holiday pay on a commission or bonus payment simply because they cannot be calculated as at the last date of employment, and can only be payable later.

"A black letter law argument ... which results in him being deprived of the holiday pay when in many other situations he would have received it, is simply not tenable."

Judge Perkins pointed to the Holidays Act definition of gross earnings as what the employer is required by contract to pay the worker, regardless of when.

Mr Howell's lawyer, Stephen Langton, said it was an important judgement.

"It clarifies an important issue about remuneration payments you get after you leave your employment -- anything from a bonus, to a commission, to a deferred remuneration payment. These are contractual payments, not discretionary.

"And they're going to get 8 per cent holiday pay on top of it, assuming they get four weeks' annual holiday. They may not have thought they were entitled to that."

He said he did not know the extent to which holiday pay had been excluded from such payments.

"The million dollar question -- no one really knows the answer -- is whether people have just assumed that was the case in the past and no one has challenged it, or whether everyone has just been doing it illegally and didn't notice."

He said it was the first time the court had considered such a case, probably because "the money you might be entitled to probably didn't warrant suing someone for".

"Not many people are entitled to over $200,000 holiday pay."