Lock, stock and holiday pay to include commission

Thursday 10 March 2016

The Employment Appeal Tribunal (EAT) has upheld the finding of the employment tribunal in the case of Lock v British Gas Trading Limited that the Working Time Regulations 1998 (WTR) can and should be read to require employers to include commission paid to workers when calculating the rate of pay for a worker’s “European” holiday entitlement.

Background

Mr Lock was a British Gas salesman who received, in addition to his basic salary, commissions based on the number and type of contracts his customers entered into. Commission was paid in arrears and amounted to approximately 60% of Mr Lock’s total earnings. Mr Lock claimed that, as he could not earn commission whilst on holiday, the makeup of his salary was a disincentive to taking annual leave. He therefore argued that commission should be included in addition to his basic salary in the calculation of his holiday pay. The case was referred to the Court of Justice of the European Union (CJEU), which held that commission payments should indeed be included in holiday pay calculations.

The pertinent issue for the Employment Tribunal (ET) was therefore whether the WTR could be interpreted so as to take into account the CJEU’s decision that holiday pay should include commission. The ET held that the WTR could be interpreted to take the CJEU decision into account, and added wording to the WTR to this effect. The ET relied on the case of Bear Scotland v Fulton to justify their decision.

EAT

British Gas appealed, arguing that the ET was wrong to conclude that the WTR could be interpreted in accordance with the CJEU decision. In particular, British Gas argued that the decision in Bear Scotland was:

(i) distinguishable, as it related to overtime payments and not commission; and

(ii) was in any event incorrectly decided and not binding upon the EAT.

The EAT rejected these arguments and dismissed the appeal.

Appeal to the Court of Appeal

Mr Justice Singh concluded his judgment by stating that if Bear Scotland was wrongly decided, then it was for the Court of Appeal to make such authority, not the EAT. British Gas is reported to have asked for permission to appeal to the Court of Appeal. Any appeal is unlikely to be heard until 2017.

What next for Employers

Employers should be aware that employees will now seek to enforce their right to seek their usual commission when they take the first four weeks of their annual leave entitlement (“European” holiday) and could have grounds to bring a claim for unlawful deduction from wages. The decision does not apply to the next 1.6 weeks of annual leave provided by the UK regulations, nor any contractual entitlement above that.  What is not clear is the issue of the “reference period” for the purposes of calculating which commission should be averaged when determining holiday pay.
We will keep you updated when this issue is addressed and pending any further appeal the case of Lock will provide greater certainty as to how cases of this nature will be decided.