Holiday Pay

In the case of British Gas Trading Ltd v Lock and another UKEAT/0189/15, the Employment Appeal Tribunal (EAT) upheld the original Employment Tribunal’s decision that commission should be included in the calculation of a worker’s holiday pay during periods of statutory annual leave under the Working Time Regulations.

Mr Lock was employed as an energy sales consultant by British Gas Trading Ltd with a remuneration package which included a commission allowance as well as a basic salary. Mr Lock’s commission represented approximately 60% of his basic pay.

Mr Lock took annual leave throughout the end of 2011 and beginning of 2012. During that time, he was paid his basic salary for periods of holiday.  He also continued to receive commission in respect of sales that he had previously achieved. He worked normal working hours. For the period when he was on holiday, he was not able to generate any new commission and therefore his commission payments were lower. Mr Lock brought a claim in the employment tribunal, arguing that he had suffered an unlawful deduction from wages as he had not been paid commission as part of his holiday pay. The tribunal referred the case to the European Court of Justice (ECJ).

The ECJ agreed that holiday pay should include all income that a worker would normally receive had he or she been working (which would include commission that a worker would otherwise have received during his or her holiday period). The ECJ recognised however that there was a clear conflict between UK domestic law (which didn’t appear to allow for this) and the relevant EU law on this point.

The case was remitted back to the tribunal, which found that Mr Lock’s commission should have been taken into account in the calculation of holiday pay. The tribunal held that it could interpret UK law in such a way as to include commission in the calculation of holiday pay by implying additional wording into the Working Time Regulations; the tribunal agreed, however, that without this additional wording, domestic law and EU law were in direct conflict.

British Gas appealed against the decision to the EAT, arguing that it was not appropriate for a court to read words into domestic law to bring it into line with the Directive.

The EAT disagreed and said that, in its view, it was appropriate to read extra words into the Regulations to achieve compliance with the aims of the European Directive.

In conclusion, it is clear that commission must be taken into account when calculating holiday pay (at least for the first 4 weeks of a worker’s holiday - which is the basic period of statutory leave derived from the European Directive).

However, there still remains uncertainty for employers regarding the handling of underpaid holiday claims and the calculation of holiday pay.

The EAT did not provide any guidance on how these sums should be calculated (or what sums can be deducted from any commission which might be due to employees during periods of annual leave); instead, they simply agreed with the decision of the tribunal.

Interestingly, the EAT also said that even if the previous cases had been wrongly decided, it was not for the EAT to say so, but rather this was something which should go to the Court of Appeal.

Accordingly, British Gas has now asked for permission to appeal to the Court of Appeal.  If granted, any appeal is unlikely to be heard until 2017. 

As things stand therefore, employers will not have any further guidance on how commission should be incorporated into holiday pay until this case goes to a remedy hearing at the tribunal level (and this will not happen until after any Court of Appeal hearing has taken place).

In addition, it is also worth being alive to the fact that this entire issue stems from the interpretation of UK law to ensure compliance with the European legislation; if Britain were to leave the EU, this is something that the UK courts would almost certainly revisit.  The UK courts may well take a different view of the position once no longer constrained by the need to comply with EU law.  

If you have any questions arising from this article or would like further information on how you calculate holiday pay, please get in touch with a member of our Employment team.