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24th February 2016

The Employment Appeal Tribunal confirms that holiday pay should include commission payments

On 22 February 2016, the Employment Appeals Tribunal (EAT) passed down the long awaited decision in the case of Lock -v- British Gas UKEAT/0189/15BA about the issue of holiday pay and commission payments.

Mr Lock was a sales consultant for British Gas. He was paid a basic salary together with commission based on the sales he achieved. Due to the commission element of his pay, Mr Lock’s salary fluctuated from month to month, but on average his commission made up 60% of his salary.

When Mr Lock took annual leave, he was not able to earn any commission. British Gas, therefore, only paid Mr Lock his basic salary during annual leave periods. As a result, Mr Lock’s salary was much lower during his holiday. Mr Lock made a claim to the Employment Tribunal for outstanding holiday pay.

The Employment Tribunal made a reference to the European Court of Justice (ECJ) for it to consider whether the Working Time Directive (Directive) required commission to be included within holiday pay. The ECJ agreed with Mr Lock and held that his commission should have been included in his holiday pay. It found that if commission was not taken into account, the worker would be placed at a financial disadvantage when taking statutory annual leave, since no commission will be generated during their holiday period. In such circumstances, the worker might be deterred from exercising the right to annual leave, which would be contrary to the Directive's purpose.

The matter was then referred back to the Employment Tribunal to decide whether our domestic legislation - the Working Time Regulations 1998 (WTR) - could be interpreted to take this requirement of the Directive into account. The Employment Tribunal held that it was able to amend the WTR to give effect to the Directive and that, therefore, Mr Lock was entitled to receive to commission payments in his holiday pay.

British Gas appealed against this decision, arguing that the Tribunal was wrong to conclude that the WTR ought to be interpreted in this way.

Rather unsurprisingly, bearing in mind the EAT’s decision in the Bear Scotland Case (see here) the EAT rejected the appeal. It agreed with the Employment Tribunal that it was necessary to imply words into the WTR to comply with the Directive as Parliament's intention must have been to comply with EU law. The Employment Tribunal was, therefore, right to find that the domestic legislation should be interpreted in this way and that, therefore, employees are entitled to receive commission and other similar payments in their holiday pay.

Bearing in mind the number of cases that have dealt with this issue over recent years, this decision did not come as a huge surprise. Most employers are now aware of the argument that their employees may well be entitled to commission payments and certain overtime payments during their holiday. However, with the claimants in Bear Scotland seeking leave to appeal and there also being around 900 further claims that had been stayed pending the outcome of the appeal in this case, we are no doubt likely to be seeing a great deal of further developments in this area.

For more information please contact Gemma Hill on 01604 463309 or click here to email Gemma.

If you would like to know more then please visit our Employment Law Services page.

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