Holiday Pay and Commission – Lock v British Gas

The Court of Appeal has handed down its decision in British Gas v Lock. It is an important case on the calculation of holiday pay, not that it says anything new.

Mr Lock was a salesman on a basic salary with variable commission paid in arrears. Mr Lock's commission depended not on the time worked, but the outcome of that work, i.e. sales achieved. Mr Lock could not earn commission whilst on leave, and therefore would lose income by taking it. He brought a claim for his 'lost' holiday pay after taking leave in December 2011 to January 2012.

In 2014, the European Court of Justice held that, when calculating holiday pay, Member States must ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work. But the ECJ left the mechanics of working out 'how much should that be?' to the member states.

Today's decision is very technical, dull, and says nothing new. The issue for the Court of Appeal was whether the UK Working Time Regulations 1998 can be interpreted as including holiday pay in respect of commission, as the wording of the Employment Rights Act 1996 suggests not. And that's right - the natural wording of the legislation says it can't.

But the Court of Appeal (as with the EAT and employment tribunal before it) got around that problem by adding a new subsection to the Working Time Regulations 1998, under the guise of statutory interpretation. There's no doubt it achieves what the ECJ wants. But it leaves us groaning under the weight of the intellectual sophistry needed to get there.

Conclusion - when calculating holiday pay, workers are entitled to be paid an amount which reflects the commission they would have earned if not on holiday. Which we all knew two years ago.

And what about the other question, of 'how do we actually calculate it?'? Well, the Court decided not to answer that - at paragraphs 114 and 115 it refers to the questions arising from calculating how to factor in bonuses and commissions, and says "nothing in this judgment is intended to answer them."

Comment

Readers who were expecting the Court of Appeal to provide definitive answers to all their questions will be very disappointed by this ruling.

The Court of Appeal were only required to deal with the case in question and their ruling is, therefore, specific to the Lock case and does not necessarily extend to other areas recently the subject of other cases.

The judgement contained the following:

“… in the course of the argument, there was some discussion about how a conforming interpretation of the WTR might apply to different types of case. The court was, for example, exercised by the case of the salaried banker who receives a single, large results-based annual bonus in, say, March. Is he entitled on his summer holiday to leave pay including an element referable to his bonus? And how does or ought the WTR deal with the type of worker who is employed on terms like Mr Lock’s, but who only becomes entitled to commission at the point in the year when a particular level of turnover, profit or other threshold is reached, which may mean he receives no commission for some months of each year? Other types of cases will raise other questions”.

The problem faced by employers are:

The Working Time Regulations are not fit for purpose because of rulings commencing with the issues of holiday pay and sickness and ending with all of the cases involving what should be included in holiday pay. The Employment Rights Act s221 has problems in that if the employee’s remuneration for employment in normal working hours (whether by the hour or week or other period) does vary with the amount of work done in the period, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending— where the calculation date is the last day of a week, with that week, and otherwise, with the last complete week before the calculation date.

The Employment Rights Act is very specific – the average over a period of 12 weeks – this does not recognise:

Pay frequencies that are not weekly or multiples of weeks Situations where might have to include other payments in average earnings, but the payments are not regular such as annual or six monthly payments. This could influence when employees take their holidays

As such, we are really no further forward than we were prior to the appeal made by British Gas in July this year.

With thanks to Rachel Farr of Taylor Wessing for the transcript of the judgment and Daniel Barnett’s Employment Law Bulletin.