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Statutory holiday pay must include a representative element of results-based commission

01-11-2016

Mr Lock was employed by British Gas Trading Ltd as an internal energy sales consultant. He received a basic salary plus commission on the sales he achieved. The commission made up approximately 60% of his remuneration and was based on results only; it did not depend on how much work was done.

During a period of statutory annual leave, Mr Lock was paid his basic salary plus the commission from previous sales that happened to fall due during the period. As Mr Lock had normal working hours his holiday pay only included basic salary and not commission. The commission he received in the months after a holiday would therefore be lower because he had not secured sales generating commission while he was on holiday.

Mr Lock brought a claim in an employment tribunal, arguing that the reduced income amounted to a breach of the Working Time Regulations (WTR) 1998. Mr Lock’s claim was selected as the lead claim for a large number of results-based commission cases (60 claims in the East Midlands region and 918 claims in the rest of the country). His case was referred to the European Court of Justice (ECJ) to gain clarity on the position between holiday pay and commission, where commission is paid on a regular basis. The ECJ held that the holiday pay of workers like Mr Lock should not be calculated based on basic salary alone, but should also include an amount that reflects the commission element of his pay; the requirements of the Working Time Directive (WTD) are that a worker receives ‘normal remuneration’ during their four weeks leave.

The case then reverted back to the Tribunal to decide, on the facts, whether British Gas had adequately factored in commission payments when calculating Mr Lock’s holiday pay and suggested that commission should form part of ‘normal pay’ and must be factored in when calculating holiday pay.

British Gas appealed however the Employment Appeal Tribunal (EAT) followed the Tribunal decision and ruled in favour of Mr Lock, stating that UK laws can be read so as to comply with the requirements of the WTD. The EAT also followed their earlier decision in Bear Scotland v Fulton which held that overtime should also be included in the calculation for holiday pay.

It is understood that British Gas intends to seek leave to appeal to the Supreme Court. In the meantime, the Court of Appeal’s decision on the 7th October 2016 does not unfortunately progress this long-running saga much further. Employers are left wrestling with the same practical difficulties in calculating the commission element of statutory holiday pay as previously.

British Gas Trading Ltd v Lock and another [2016] EWCA Civ 983


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