The Court of Appeal has confirmed today (7 October) in the long running case of Lock v British Gas Trading Ltd that employers will have to pay commission as part of holiday pay.
During the four weeks annual leave under the Working Time Directive (WTD) an employee is entitled to receive “normal remuneration”. “Normal remuneration” should include anything intrinsically linked to the work performed by the employee under their contract of employment.
In this case Mr Lock brought a complaint of unlawful deduction of wages in the form of unpaid holiday pay. As well as receiving a basic salary, Mr Lock was also a participant in his employer’s commission scheme which was designed “to provide an incentive to encourage and reward individual performance”. Commission was payable when a customer started to purchase their gas from British Gas. Put simply, this pay structure meant that Mr Lock did not generate any commission during his annual leave. Consequently, he was paid reduced remuneration for the period after he returned from his holiday which, he argued, was a disincentive for him to take leave.
Mr Lock brought a Tribunal claim and his case was referred to the European Court of Justice (ECJ) to gain clarity on the interplay between holiday pay and commission, where commission is paid on a regular basis. The ECJ held that the holiday pay of workers like Mr Lock should not be calculated based on basic salary alone, but should also include an amount that reflects the commission element of his pay; the requirements of the WTD are that a worker receives ‘normal remuneration’ during their four weeks leave.
The case then reverted back to the Tribunal to decide, on the facts, whether British Gas had adequately factored in commission payments when calculating Mr Lock’s holiday pay. In order to comply with the ECJ ruling the Tribunal held that the following words should be added to the Working Time Regulations to bring them in line with the WTD “…a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purposes of section 221.” In other words commission should form part of ‘normal pay’ and must be factored in when calculating holiday pay.
British Gas appealed however the Employment Appeal Tribunal (EAT) followed the Tribunal decision and ruled in favour of Mr Lock, stating that UK laws can be read so as to comply with the requirements of the WTD. The EAT also followed their earlier decision in Bear Scotland v Fulton
which held that overtime should also be included in the calculation for holiday pay.
Court of Appeal decision
Whilst today’s Court of Appeal decision confirms earlier rulings in relation to holiday pay and commission, the end may still not be in sight; there is also the possibility that British Gas may appeal to the Supreme Court which will cause further delay and uncertainty for employers.
This latest decision on commission payments, and other recent decisions on the inclusion of voluntary overtime in holiday pay certainly come as no surprise, and continue to demonstrate the current direction of travel in relation to holiday pay calculations. Whilst an unpopular decision for employers which shows that the ‘net is closing’ this latest step in the holiday pay saga may provide an opportunity for businesses to call again for future changes to the Working Time Regulations post Brexit.