Holiday Pay & Commission

Holiday Pay & Commission

In February 2016 the EAT delivered its eagerly awaited decision in Lock v British Gas Trading Limited, confirming that commission should be included in holiday pay.

Background

Since late 2014 there have been a number of key Decisions handed down addressing the correct approach to the calculation of holiday pay, most significantly:

In November 2014 the Employment Appeal Tribunal (EAT) in Great Britain ruled, in the case of Bear Scotland v Fulton, that the calculation of Working Time Directive holiday should include non-guaranteed overtime;

In addition to this the ECJ in Lock v British Gas considered the correct approach to the calculation of holiday pay where a worker’s remuneration consists of basic salary plus commission.

Lock v British Gas

Mr Lock was employed by British Gas as a salesman. As well as his basic salary, he was entitled to receive commission based on sales which amounted to approximately 60% of his total earnings. The case centered on whether commission payments should be included in the calculation of his holiday pay.

The ECJ stated that:

  • workers must receive their “normal remuneration” during annual leave;
    during his period of annual leave, Mr Lock was not able to generate any commission during his holiday. This led to a financial disadvantage, even though this took effect some weeks after his holiday period;
  • a reduction in a worker’s remuneration that is liable to deter him from exercising his right to take annual leave is contrary to the objective pursued by the Working Time Directive irrespective of the fact that the reduction in remuneration might occur some time after the holiday period;
  • Mr Lock’s commission payments were directly (and intrinsically) linked to the performance of the tasks he was required to carry out under his employment contract. Therefore, commission must be taken into account in the calculation of his statutory holiday pay.

Following the ECJ Decision the case returned to the Tribunal which concluded the UK Working Time Regulations (WTR) could be interpreted to give effect to the ECJ Decision; wording would be added to the Regulations to this effect.

British Gas appealed, arguing that the Tribunal was wrong to conclude that the WTR could be interpreted in accordance with the ECJ decision. British Gas argued that the decision in Bear Scotland v Fulton was distinguishable as it related to overtime payments and not commission, and also argued that it was incorrectly decided and not binding upon the EAT. The EAT rejected these arguments.

What next for employers?

It is clear that UK law requires commission to be included in holiday pay, however there are still a number of unanswered questions, most notably what the appropriate reference period should be for calculating the holiday pay of workers who earn commission.

It is likely that a further Tribunal hearing will be required to determine the compensation due to Mr Lock by British Gas, which may provide some guidance on the appropriate length of reference period.

Whilst this guidance will be welcome, employers are reminded that as this guidance will be from a Tribunal it will not be binding. There is also the possibility that British Gas will seek leave to appeal the EAT Decision and thereby create a further period of uncertainty around whether commission payments should be included in the calculation of holiday pay. Even if there is such an appeal, the view of EEF Northern Ireland is that ultimately the settled position is likely to be that commission payments should be included in the calculation of holiday pay.

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