News Updates

Holiday pay

Thursday 13th October 2016

In the latest development in the well-known case of Lock v British Gas Trading Ltd, the Court of Appeal has confirmed that commission must be included in the calculation of holiday pay. Mr Lock was a salesman for British Gas, who argued that his sales based commission should be included in the calculation of his holiday pay. While on holiday he was not able to earn commission and this he argued, resulted in a reduction in his income. The ECJ held that Article 7 of the EU Working Time Directive (“EU Directive”) required that results based commission be taken into account when calculating holiday pay to ensure that normal remuneration is maintained for the duration of any annual leave period. The question before both the EAT and the CA was whether the UK’s Working Time Regulations 1998 (“WTR”) could be interpreted as incorporating the requirement to include commission in the calculation of holiday pay.

The CA, in upholding the EAT’s decision that commission must be included in the calculation of holiday pay, noted that the WTR were enacted “solely and deliberately” to implement the EU Directive.  Therefore, it follows that the UK government must have intended to fulfil the obligations arising under the EU Directive, including those made apparent by the ECJ. The “grain” or “thrust” of the WTR was held to be providing that holiday pay be measured by reference to Article 7, which has been interpreted by the ECJ as requiring that a worker’s “normal remuneration” be taken into account. The WTR should be construed accordingly, so as to include Mr Lock’s commission payments in the calculation.

The CA would not speculate as to the position of other workers, for example, those who received a results based annual bonus, or the worker who receives commission only when a particular level of turnover or profit is achieved. However, the CA did indicate that the words read into the WTR by the ET were too wide, as it referred to all types of commission and not just contractual results based commission. The CA expressed a preference for a form of wording that confined the ET judgment to cases similar to Mr Lock’s. British Gas had applied for permission to appeal to the Supreme Court and therefore this issue may not yet be concluded.

All information in this update is intended for general guidance only and is not intended to be comprehensive, or to provide legal advice.