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Holiday Pay - Appeal rejected in landmark case

An appeal in a landmark case on holiday pay has recently been rejected by the Employment Appeal Tribunal (the ‘EAT’) meaning people who earn commission will see their pay bumped up to include it.

The decision in the long-running saga of British Gas v Lock secures the original ruling that holiday pay must take account of people who earn both commission and basic pay.

Background

The case involves Mr Lock – a British Gas salesperson – whose remuneration package included a basic salary plus commission, based on the number and type of contracts to which customers agreed. When he took annual leave, he would only receive basic pay, which was considerably less than his usual salary.

Mr Lock argued that this was a disincentive to taking annual leave and lodged a claim with an employment tribunal, which referred the case to the European Court of Justice (the ‘ECJ’) to clarify the relationship between holiday pay and commission for workers where commission was a regular part of their pay.

The ECJ concluded that because his commission was directly linked to the work he carried out, it must be taken into account when calculating holiday pay. The case was then referred back to the UK tribunal to apply its ruling to UK law.

The subsequent tribunal decision, which was handed down last March, found in favour of Mr Lock, and also applied an extra clause to the Working Time Regulations 1998 (‘WTR’) to make them comply with the Working Time Directive.

In a similar case, Bear Scotland v Fulton, the EAT ruled that UK law must be interpreted in a way that conforms to EU law by requiring employers to take into account non-guaranteed overtime payments when calculating holiday pay.

The tribunal in the Lock case ruled that the same approach should apply to commission.

British Gas appeal outcome

British Gas appealed the initial tribunal decision and the EAT dismissed this appeal on 22 February 2016, holding that the principles set out by the EAT in Bear Scotland in respect of non-guaranteed overtime and holiday pay applied equally in respect of the commission payments in Mr Lock’s case. Further, the EAT in this case had no basis to depart from the decision of the EAT in Bear Scotland - the WTR can and should be interpreted in line with the ECJ’s ruling and so as to reflect the intention of the Working Time Directive.

However, this latest decision may not be the end of the matter as British Gas has requested permission to take the case to the Court of Appeal to gain a definitive ruling. If such appeal is allowed, it is unlikely to be listed before the end of the year.

What does this mean for employers?

As it stands, we have two EAT decisions that commission and overtime, both guaranteed and non-guaranteed (where the worker is obliged to work overtime if required), should be included in holiday pay.

The reference period employers must use to calculate holiday pay is yet to be clarified – the ECJ said this was a matter for national courts to decide by taking an average over a period they considered to be representative. Furthermore, the practicalities of how such payments should be calculated still remains to be determined. In the meantime, it is likely that tribunals will approach the issue on a case-by-case basis.

Any employer wishing to adjust holiday pay should take legal advice before doing so, given the uncertainties surrounding the precise method of calculating holiday pay.

Posted on 02/28/2016 by Ortolan

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