Summary: The Court of Appeal has decided that the Working Time Regulations can be interpreted to include results-based commission in holiday pay. However, this decision is not necessarily the trigger for employers to make proactive changes to holiday pay calculations.

The Court of Appeal considered extensive substantive arguments on whether the Working Time Regulations (WTR) can be interpreted to conform with EU principles on holiday pay. The Court decided on balance that the WTR should be interpreted in this way, and that Mr Lock was therefore entitled to have his contractual results-based commission taken into account when working out his holiday pay.

What does this mean for employers?

If your organisation operates commission schemes such as these, you may feel that the Court of Appeal’s decision is the trigger to now make proactive changes to your holiday pay calculations. However, you may still wish to take stock before doing so, because:

  • it is possible that British Gas will appeal to the Supreme Court, not least since the Court of Appeal said in its ruling that it was not at all easy to decide that the Working Time Regulations should be interpreted in this purposive way;
  • it is currently unclear how EU law will continue to underpin employment rights such as holiday pay following Brexit; and
  • several very important issues about how to calculate holiday pay are still unanswered, including whether annual bonuses should be taken into account when calculating holiday pay and how the reference period works in practice.

You may therefore decide that for the time being, this ongoing uncertainty tips the balance in favour of continuing to exclude commission and other payments such as voluntary overtime from holiday pay.

In any event, you should think carefully before making contractual changes giving rights to staff which prove to be more generous than UK law ultimately requires.