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Employment A-Z



Holiday Pay and Commission

The Tribunal decision

The Appeal Tribunal decision

The Court of Appeal decision

Lock v British Gas Trading Ltd and another ET/1900503/2012

On its return from the European Court of Justice (ECJ), the employment tribunal in this important case has read an extra subsection into the Working Time Regulations 1998 (SI 1998/1833) to comply with the Working Time Directive (2003/88/EC).

Lock works for British Gas as a sales consultant. His role is to persuade business clients to purchase British Gas's energy products. On top of his basic pay, he is paid monthly commission. His commission fluctuates because it is based on the sales that he achieves and he is paid only after the sales contract is signed.

Lock was on paid annual leave from 19 December 2011 to 3 January 2012. During that period, his remuneration comprised his basic pay and the commission that he had earned during the previous weeks. However, Lock did not carry out any work during his period of annual leave, and so he was not able to make any new sales or follow up on potential sales during that period. This affected his pay in the following months. Lock brought a claim in the UK employment tribunal for outstanding holiday pay on the basis that his holiday pay did not reflect what he would have earned from commission.

The employment tribunal asked the ECJ for guidance on whether or not member states should take measures to ensure that a worker is paid in respect of periods of annual leave by reference to the commission payments that he or she would have earned during that period, had he or she not taken the leave.

In Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ, the ECJ concluded that Mr Lock's commission was directly linked to the work he carried out, and so must be taken into account when calculating holiday pay. Despite the fact his commission fluctuated from month to month, it was permanent enough for it to be regarded as a normal part of his salary. However, the ECJ left it to the UK employment tribunal to work out how the ruling should be applied to the UK's method of calculating holiday pay in general, and in Lock's case in particular.

On the return of the case to the UK, the employment tribunal stressed that its decision is not about whether or not commission should be included in a worker's holiday pay. The ECJ has already decided that commission must be included. The tribunal also declined to open up its decision to considering whether or not other forms of remuneration, such as discretionary bonuses, should be included in holiday pay.

The employment tribunal also had the benefit of the Employment Appeal Tribunal (EAT) decision on overtime in holiday pay in Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT. The employment tribunal said that it saw no difference in principle between regular non-guaranteed overtime and commission. No distinction would ordinarily be made between them in an unlawful deduction from wages claim.

The employment tribunal concluded that words could be read into the Working Time Regulations 1998 to comply with the ECJ's interpretation of the Working Time Directive. The parties settled on the addition of a new subsection (3)(e) (in italics below) in reg.16 of the Working Time Regulations 1998:

"Payment in respect of periods of leave

16 (1) A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week's pay in respect of each week of leave.

(2) Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week's pay for the purposes of this regulation, subject to the modifications set out in paragraph (3).

(3) The provisions referred to in paragraph (2) shall apply:

(a) as if references to the employee were references to the worker;

(b) as if references to the employee's contract of employment were references to the worker's contract;

(c) as if the calculation date were the first day of the period of leave in question; and

(d) as if the references to sections 227 and 228 did not apply.

(e) as if, in the case of the entitlement under Regulation 13, 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 purpose of section 221."

The employment tribunal declined to provide guidance on the correct reference period when averaging Lock's commission to calculate his holiday pay. It is possible that this issue will be considered in any subsequent remedy or appeal hearing.

British Gas Appealled.

British Gas Trading Ltd v Lock & Anor UKEAT/0189/15/BA

British Gas submitted an apeal against the ET decision on the grounds that:

  1. Commission and non-guaranteed overtime are dealt with under different provisions, which use different language, and the Tribunal incorrectly concluded that Bear Scotland, a case about overtime, had any bearing on the outcome of Lock.

  2. In any event, the EAT in Bear Scotland incorrectly concluded that our domestic legislation could be interpreted purposively to give effect to EU Law.

The EAT dismissed the appeal. The Employment Rights Act and Working Time Regulations can and must be interpreted in a way which conforms with the Working Time Directive on holiday pay. Parliament's intention must have been to comply with EU law. Having considered a number of other authorities, the EAT saw no reason to depart from the reasoning in Bear Scotland. Although not bound by its own previous decisions, they are persuasive. The EAT may only depart from its previous decisions where they are manifestly wrong or in other exceptional circumstances. Such departure could not be justified in this case.

British Gas Appealed.

British Gas Trading Ltd v Lock and another [2016] EWCA 983 CA

On 7 October 2016, the Court of Appeal held that the Employment Appeal Tribunal (EAT) was correct to uphold an employment tribunal decision that the Working Time Regulations 1998 can be interpreted to require employers to include a worker's commission in the calculation of his or her holiday pay.

It is likely that British Gas will appeal to the Supreme Court against the Court of Appeal decision.

Practical tips

Technically, the principles in this case apply only to workers' holiday pay for the four weeks' annual leave to which they are entitled under EU law. Employers need to consider whether or not it is worth the extra administrative burden to treat the additional 1.6 weeks to which UK workers are entitled under reg.13A of the Working Time Regulations 1998 differently.

Employers can take comfort from the introduction of the Deduction from Wages (Limitation) Regulations 2014, which limit the extent to which backdated claims for deductions from wages can be brought in the employment tribunal in relation to holiday pay claims made on or after 1 July 2015.