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16th October 2016

Holiday Pay and Commission – British Gas Trading Limited v Lock in the Court of Appeal

The expedited Lock appeal was dismissed by the Court of Appeal on Friday 7th October, confirming the decision of the Employment Appeal Tribunal that workers who work set or normal hours are entitled to have their commission payments factored into the calculation of ‘normal remuneration’ which they should be paid during 20 of their 28 days statutory holiday entitlement.

Judgment

Sir Colin Rimer, giving the only judgment of the Court, held that Article 7 of the Working Time Directive (‘WTD’) requires the UK to ensure that workers receive their normal remuneration during the 20 days annual holiday granted by the WTD. As properly understood, normal remuneration for Mr Lock included both his basic pay and an element of commission which he earned on sales.

The primary question before the Court was whether it was possible to interpret the Working Time Regulations (‘WTR’) which implement the WTD into domestic law in such a way as to comply with the requirements of Article 7 and the payment of normal remuneration. The EAT had held, in the earlier Bear Scotland case dealing with overtime payments within holiday pay, that such interpretation was possible by inserting a new sub clause into the WTR. The argument runs that if all the Court is doing is giving effect to the intention of Parliament to properly implement the WTD into domestic law  and that interpretation ‘goes with the grain’ of the WTR rather than against it, then (as here) words can be inserted into the Regulations in order to give that proper effect to the WTD.

By looking at the underlying thrust of the legislations and having regard to the assumed intention of Parliament to implement the WTD, the Court of Appeal held that it would be ‘going with the grain’ of that assumed intent to give effect to the principle of normal remuneration in this case.
 
Sir Colin made clear that the Court did ‘waver’ before reaching this conclusion, which may give heart to British Gas in its stated intention to apply for leave to appeal to the Supreme Court. However, for the time being the law remains as it has previously been understood as a result of this decision.

Wider Implications?

The Court of Appeal went to some pains to emphasise that this decision was restricted to its own facts, namely the situation where salesmen such as Mr Lock are paid a basic salary with variable commission paid based on sales achieved and where those payments are made in arrears. On related questions such as the treatment of bankers who receive a results based annual bonus or the worker who receives commission only when a particular level of turnover or profit is achieved, Sir Colin said that ‘nothing in this judgment is intended to answer them.’ Those questions remain unanswered therefore several years after they were first identified.

In light of that and the stated intent of British Gas to appeal to the Supreme Court, the saga of how to correctly calculate holiday pay looks certain to rumble on. In this post BREXIT referendum world it is instructive to note that the Department of Business Innovation and Skills has been strongly supportive of Mr Lock’s claim to commission payments whilst on holiday, meaning that the law may continue to apply even following the Article 50 process to leave the EU.

As ever, if you would like specific advice on how your business should deal with the calculation of holiday pay please contact Clare Waller on 01604 463350 or click here to email Clare.

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