The Court of Appeal confirms that statutory holiday pay must include commission

31.10.2016

In British Gas -v- Lock 2016, the Court of Appeal has upheld the EAT’s decision that the Working Time Regulations 1998 can be interpreted consistently with the Working Time Directive so that workers are entitled to receive holiday pay which reflects the commission they would have earned if not on holiday. However, it was not within the Court’s remit to deal with the thorny question of the appropriate reference period for the holiday pay calculation or to speculate how the principle might impact on other workers, e.g. a banker who receives a results-based annual bonus. It is understood that British Gas intends to seek leave to appeal to the Supreme Court.
Mr Lock was employed by British Gas as a salesman on a basic salary with variable commission based on sales achieved. When he took holiday, he received his basic pay and commission based on his earlier sales. However, his commission payments were lower in subsequent months as he was unable to make any sales whilst on holiday. Mr Lock brought a claim for “lost” holiday pay. He argued that since the ECJ had held in the British Airways -v- Williams 2011 case that, under the Working Time Directive, workers must receive their “normal remuneration” during periods of annual leave, that meant that his pay should be enhanced to reflect the commission that he would otherwise have earned during his annual leave. Mr Lock’s case was also referred to the ECJ due to an apparent conflict between UK and EU law but the ECJ took the same line as in Williams and held that commission payments must be taken into account when calculating holiday pay.
Back in the UK, the issue was whether the Working Time Regulations 1998 could be interpreted to give effect to EU law. On the face of it, they could not as the calculation of “a week’s pay” in Mr Lock’s case would be limited to basic pay only. However, the employment tribunal, the EAT and the Court of Appeal all held compatibility could be achieved by re-writing the definition of “a week’s pay” to ensure that results-based commission should be included in holiday pay.