Employment Law Update - Commission payments and holiday pay

Published: 22/03/2016

The Employment Appeal Tribunal (EAT) has handed down its decision in the case of Lock v British Gas Trading Ltd, the latest word in the long-running saga of what should be included in the calculation of statutory holiday pay.

Lock v British Gas Trading Ltd, EAT

As a reminder, this case concerned the payment of commission following a period of holiday, during which time the employee (an energy trader) was unable to earn commission generated by sales. The case was previously referred to the European Court of Justice (ECJ) by the Leicester employment tribunal. The ECJ ruled that commission payments must be taken into account when calculating holiday pay under the EU Working Time Directive (2003/88/EC). There was found to be an intrinsic link between the payment of the commission and the performance of tasks under Mr Lock’s contract of employment, meaning that commission payments should be included in the calculation of statutory holiday pay.

The case then returned to the employment tribunal to determine whether our domestic Working Time Regulations 1998 could be interpreted so as to give effect to the ECJ’s decision. The tribunal held that the WTR were capable of this interpretation, in effect upholding Mr Lock’s claim in principle. British Gas appealed the tribunal’s decision, which was heard by the EAT on 8 and 9 December 2015.

EAT decision
The EAT has dismissed the employer’s appeal, deciding that the case could not be distinguished from the EAT’s previous decision in Bear Scotland and others v Fulton and others, concerning the inclusion of non-guaranteed overtime in the calculation of holiday pay. The EAT was satisfied that the reasoning in Bear Scotland on the interpretation of the WTR to include overtime payments applied equally to commission payments.

Since the decision in the Bear Scotland case was not manifestly wrong or inconsistent, Mr Justice Singh could see no reason to depart from the reasoning in that case. He made an express finding that if the EAT’s reasoning in Bear Scotland is wrong, it is a matter for the Court of Appeal to decide.

The EAT’s decision in this case comes as no surprise; very few experts had anticipated that it would uphold the employer’s appeal. However, the door has been left open by the EAT for an appeal, and British Gas has reportedly already applied to the Court of Appeal for permission to appeal the decision. Any appeal is unlikely to be heard before 2017.

Subject to any appeal, this decision means that both commission payments and nonguaranteed overtime should be included in the calculation of statutory holiday pay. Unfortunately, the EAT’s decision in this case takes us no further forward in clarifying the actual mechanics for calculating holiday pay.

The case of Bear Scotland is also expected to return to the EAT later this year, with the employees challenging the ruling that a gap of three months or more will defeat a claim for underpayments of holiday pay.

We will unfortunately have some considerable time to wait until we have any more certainty on the calculation of statutory holiday pay.

The content of this article is for general information only. For further information regarding commission payments and holiday pay, please contact a member of Birketts' employment team. Law covered as at March 2016.

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