EAT finds that holiday pay SHOULD include commission

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

The Employment Appeal Tribunal ("EAT") has yesterday handed down its long awaited decision in British Gas' appeal in the case of British Gas Trading Limited v Lock [2015]. 

Background

Mr Lock worked for British Gas. Mr Lock earned commission on sales which represented around 60% of his pay. When he took holiday his commission payments in subsequent months were lower because he had been unable to generate sales whilst on holiday. Mr Lock complained to the Employment Tribunal that he had suffered an unlawful deduction from wages and argued that holiday pay should reflect the income that a worker would usually receive had he been working. The Employment Tribunal referred the case to the ECJ where it was held that commission payments must be taken into account when calculating holiday pay. The Employment Tribunal subsequently adopted the ECJ ruling.

British Gas appealed the Tribunal's decision.

Decision

The EAT dismissed the appeal and the key findings were:

  • commission payments should be included in the calculation of holiday pay in respect of the four weeks’ annual leave under regulation 13;
  • it is permissible - and indeed necessary - to imply words into the Working Time Regulations 1998 to comply with EU law. Parliament's intention must have been to comply with EU law. Domestic legislation can therefore be interpreted in a way which conforms to EU law on holiday pay;
  • the EAT is not bound by its own previous decisions but they are persuasive and may only be departed from if manifestly wrong or in other exceptional circumstances. Such a departure could not be justified in this instance; and
  • the EAT followed the decision in Bear Scotland (which concerned guaranteed overtime). If Bear Scotland was wrongly decided then the Court of Appeal must decide that, not the EAT.

Comment

We will have to wait for the Court of Appeal to have an opportunity to consider the decision in Bear Scotland.  However, we query whether a Brexit will affect the outcome of the holiday pay cases.

The decision has serious implications for employers who pay commission. These employers will need to ensure that holiday pay includes a payment in respect of commission. 

If employers haven't already done so they should review and consider what elements of pay should be paid when employees take their four weeks’ annual leave provided by Regulation 13 of the Working Time Regulations or they risk claims for unlawful deductions from wages.

Read the full judgment here.