The Court of Appeal has confirmed, in the case of Lock v British Gas Trading Limited that holiday pay must include any results-based commission that would normally be earned by an employee.
The Lock litigation is important for many employers as it has confirmed that the Working Time Regulations 1998 (“WTR”) can be interpreted to accommodate the decisions of EU case law. In particular, the approach that holiday pay should include elements of normal pay, such as results-based commission.
In their appeal, British Gas Trading Limited sought to challenge the above approach, arguing that domestic case law and the WTR dictate that only a worker’s basic pay must be included in his or her holiday pay.
The effect of the decision is to confirm to employers will need to look at factoring in commission when calculating holiday pay, although this is limited to the 20 days under the Working Time Directive.
We previously reported on the decision of the Employment Appeal Tribunal (“EAT”) in Lock in February. The Court of Appeal has now held that the EAT were correct to uphold the employment tribunal’s (“ET”) previous decision that the WTR can be interpreted to require employers to include a worker’s commission in the calculation of his or her holiday pay.
The ET had referred the case to the ECJ, who said that the objective of the Working Time Directive (“WTD”) was for workers to receive “normal remuneration” (including commission) in respect of annual leave. The ET held that words should be read into the WTR to comply with the ECJ’s decision.
The Court of Appeal agreed but did suggest that the ET’s implied wording had been too wide and recommended that the focus of the wording should be narrowed to the case of Lock and only refer to “results-based commission”.
The Court of Appeal did not comment on the impact this decision could have on the interpretation of other types of payments, such as annual bonuses, nor did it provide any guidance on the appropriate commission and other reference period for the calculation of holiday pay.
Paula Bailey comments: "Despite the potential for an appeal to the Supreme Court, this ruling paves the way for commission payments to be included in holiday remuneration and could have significant financial implications for employers. There are unanswered questions around the appropriate reference period for averaging holiday pay which will only be answered as the issue unfolds in the courts and tribunals. If British Gas appeal, we might not see this particular case resolved until Autumn next year at the earliest."
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