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Update - Lock v British Gas: Commission and Holiday Pay

on Friday, 26 February 2016.

The Employment Appeal Tribunal has confirmed that UK legislation must be interpreted in accordance with European law so that commission payments are included when calculating holiday pay.

The case of Lock v British Gas is a long running case.

Mr Lock was a sales consultant for British Gas. His average monthly take home pay comprised of basic pay (40%) and commission (60%).

When Mr Lock took annual leave, he received commission based on past sales he had made, but did not receive any sum to account for the commission he would have earned if he were not on annual leave. His salary was therefore significantly lower in the month following any period of annual leave.

Mr Lock brought a claim in the Employment Tribunal (ET) in 2012, arguing that he had suffered an unauthorised deduction from wages in respect of a period of his annual leave.

The process set out below then followed:

  • The ET made a reference to the European Court of Justice (ECJ).
  • In May 2014, the ECJ found that commission payments must be taken into account when calculating holiday pay under the European Working Time Directive where commission is included in normal pay regularly received.
  • The case was remitted to the ET in February 2015 and it was decided that the relevant UK legislation, the Working Time Regulations 1998 (WTR), should be interpreted in a way which complies with European law.
  • In May 2015, British Gas appealed the ET's decision and the EAT has now upheld the ET's decision.

The EAT rejected the appeal by British Gas that this case should be distinguished from Bear Scotland & Others v Fulton & Others, where it was decided that non-guaranteed overtime must be taken into account when calculating holiday pay. The EAT found that it was not incorrectly decided in Bear Scotland  that the WTR should be interpreted to give effect to European law.

Best Practice

Taking into account the Bear Scotland decision, the finding in this case is not surprising. It is now clear from both cases that the WTR should be interpreted in accordance with European law, including recent ECJ decisions, that holiday pay should include all sums regularly earned as normal pay.

Employers should review any commission structures to determine whether commission payments should be included in holiday pay calculations and also establish the potential costs and implications this will have to their payroll system. Employers will then gain a clearer picture of what action they need to take going forward.

For more information or advice, please contact Helen Hughes in our Employment Law team on 020 7665 016.

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