Lock v British Gas: Commission and Holiday Pay

Background

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 returned to the ET in February 2015 where it was decided that the relevant UK legislation, the Working Time Regulations 1998 (WTR), should be interpreted in a way which complies with the European directive.
• In May 2015, British Gas appealed the ET's decision and the EAT upheld the ET's decision.
• The case was subsequently appealed to the Court of Appeal

The Court of Appeal's Decision

British Gas argued that in interpreting the WTR in a way which complied with the underlying European directive, the EAT and ET were required to re-write the WTR in a way that went against the grain of the legislation and in a way that was contrary to the clear, unequivocal wording of the WTR.

Although the Court of Appeal were swayed by British Gas' arguments, ultimately it rejected them.

The Court noted that the WTR was enacted solely and deliberately for the purpose of implementing the European directive and that it was therefore required to presume that the UK government's intention was to entirely fulfill its obligations under European law even where these were not apparent at the time of enactment.

The decision of the EAT was therefore upheld confirming that statutory holiday pay should include all sums, including results-based commission, regularly earned by employees as normal pay.

Best Practice

In many ways, we remain where we were following the EAT's decision in May. We have previously recommended that 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. This remains the case.

The big question remains, accepting that an element in respect of results-based commission should be included when calculating statutory holiday pay, how should that element be calculated? What reference period in which commission was paid should be taken into account? For some commission earned may be reasonably consistent; for others it may fluctuate considerably thereby skewing the calculation depending upon the period used.

Employers should also note that this decision only applies to the four weeks' of annual leave derived from European law and not the additional 1.6 weeks' of leave attributable purely to domestic legislation or any additional contractual entitlement (although the administrative difficulties of operating two distinct holiday pay calculations may make it impractical to differentiate between the two).

Whether British Gas will seek leave to appeal to the Supreme Court has yet to be confirmed.

For more information, please contact Nick Murrell in our Employment Law team on 0117 314 5627.