Employment Law Update – Holiday Pay & Commission


According to the latest judgment in the long-running case of British Gas v Lock, delivered by the Court of Appeal on Friday, it has been confirmed that holiday pay calculations must include a representative amount for any results-based commission that would ordinarily be earned.

Background to the case:

Mr Lock was a sales consultant for British Gas on a basic salary with variable commission paid in arrears. Mr Lock could not earn commission whilst on annual leave and therefore would lose income as a result. He issued a claim against British Gas in the employment tribunal, for unlawful deduction from wages in relation to underpayments of holiday pay.

Following much to’ing and fro’ing between the courts in England and the European Court of Justice (“ECJ”), the Court of Appeal has upheld a decision issued by the Employment Appeal Tribunal (“EAT”) in February 2016, that “normal remuneration earned over a suitable reference period should be taken into account when determining the calculation of holiday pay”. This decision upholds the decision reached by the ECJ, which found that the Working Time Regulations allowed Mr Lock to have his holiday pay calculated based on his normal remuneration, which includes taking into account commission payment.

So, what does this mean for employers?

Whilst the Court of Appeal took Mr Lock’s average commission earnings over a 12 week period, they did not comment on how normal remuneration and the requisite reference period should be calculated in other cases. As such that remains a matter on which there is very little guidance, with another appeal highly anticipated. In the meantime however, employers will need to be aware that commission ‘earnings’ do now need to be included in holiday remuneration calculations, and they will need to consider what constitutes ‘normal remuneration’, and, how and over what period it is to be calculated. Despite the potential for appeal, employers would be recommended to seek agreement with workers with regards to this.

To find out more about the issues raised in this update, or to discuss any queries regarding holiday pay, and other HR and employment law issues, please do get in touch with Michelle Morgan on [email protected] or 01628 671636.

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