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The continued holiday pay saga: Commission

The Employment Appeal Tribunal has confirmed in the long-running case of Lock v British Gas Trading Ltd, which was first brought to tribunal in April 2012 that employers will have to pay commission as part of holiday pay.

You may all recall (or not) the case involved a salesman, Mr Lock, whose pay was split into basic salary and commission. The commission was naturally based on the number of sales achieved which varied each month. Mr Lock had taken two weeks annual leave in December 2011 and so was not able to conclude any sales during that time. When it came for his holiday pay calculation to be made, his employer only took his basic salary into account.

Mr Lock argued that this was a discouragement to taking annual leave and thus lodged a claim with an employment tribunal, which referred the case to the European Court of Justice (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 Mr Lock’s commission was intrinsically linked to the performance of the tasks that he was required to carry out under his contract of employment, and therefore it must necessarily be taken into account in calculating his holiday pay. The case was then referred back to the UK tribunal to apply its ruling to UK law.

The subsequent employment tribunal found in favour of Mr Lock’s argument last March and held that for the Working Time Regulations 1998 (WTR) to comply with the Working Time Directive (WTD) an extra clause should be applied which gives effect to the requirement of Article 7 of the Working Time Directive that holiday pay reflect “normal remuneration”.

British Gas appealed the initial tribunal decision, claiming it would be “judicial vandalism” to follow the ECJ’s recommendations and interpretation of the Working Time Regulations.

However, the EAT dismissed this appeal, holding that UK legislation could be interpreted in a way that conforms to the requirements of Article 7 of the EU Working Time Directive.

The above approach was also adopted in a similar case, Bear Scotland v Fulton, wherein 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.

Conclusion

The EAT decision will force employers to review their current holiday pay allowances in relation to elements such as overtime and commission. No doubt that this additional expense for employers will open the floodgates to a whole array of unlawful deductions from wages claims should they fail to include such payments in their employees holiday pay.

However, it is important to note that there remain other outstanding questions for the tribunal to consider, including the correct reference period for calculating Mr Lock’s holiday pay. Further, one point that is clear from other cases – and has already been accepted by the tribunal – is that only the four weeks of paid annual leave entitlement deriving from the WTD will be affected by the result.

As always if I can provide you with any further assistance on queries relating to holiday pay or any other issue, please do not hesitate to contact me for a free consultation on 0113 350 4030 or samira.cakali@scesolicitors.co.uk.


Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here.

Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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