The UK Employment Appeal Tribunal (EAT) has handed down its judgement in an appeal by British Gas (BG) in the case against its former employee Joe Lock and the Secretary of State for Business, Innovation & Skills[1]. The EAT confirmed that results-based commissions should be included in the pay of employees in respect of their four week basic statutory holiday entitlement.

Lock's claim is the lead claim for a large quantity of cases surrounding whether results-based commission should be included in calculating holiday pay. There are 60 outstanding claims against BG in the East Midlands and 918 outstanding claims against BG across the country. There are thousands of similar “stayed” claims against other employers pending the outcome of this decision (and possibly any appeal).

Background

Mr Lock is a former British Gas salesman. In addition to a basic salary, he was paid a results-based commission which made up around 60% of his normal pay. The commission depended on the number and type of contracts customers entered into rather than how much work was done. When on annual leave, he was paid his basic salary and continued to receive commission based on his earlier sales. However, his commission payments were lower during the months that followed because he had been unable to generate any sales whilst on holiday.

The claim

Unison, on Mr Lock's behalf, complained that BG's approach to holiday pay represented an unlawful deduction from wages for the period of annual leave as it was not enhanced to reflect the commission that Mr Lock would otherwise have earned during that time[2]. It was argued that the national legislation needed to be interpreted so as to conform to European legislation[3]. Following a reference to the Court of Justice of the European Union, the Employment Tribunal (ET) held it was possible to read words into national legislation[4] so that it did conform to the requirements of European legislation – ie that holiday pay should include all normal remuneration.

Grounds of BG's appeal

BG argued that the ET decision was wrong in law. Much of BG's argument focused on the ET having being wrong in following the decision in Bear Scotland[5]. Bear Scotland stated that national legislation should be interpreted to comply with European legislation. This meant employers needed to include non-guaranteed overtime payments in statutory holiday pay.

Comment

It is anticipated that BG will pursue the matter to the Court of Appeal. The EAT only considered the narrow point of whether the CJEU judgment meant national legislation should be interpreted in a way which conforms with European legislation. As such, certain points remain unclear:

  • how to calculate the “reference period” when calculating the value of the commission part of the holiday pay; and
  • what is deemed to be “normal” commission earnings.

Accordingly, employers may want to take a ‘wait-and-see' approach to their holiday pay policies for impacted staff.