British Gas has appealed to the Employment Appeal Tribunal (“EAT”) against the decision of the Leicester Tribunal which decided that the Working Time Regulations (“WTR’s”) can be reworded to enable UK legislation to comply with the requirements of the Working Time Directive.

If British Gas are successful in their appeal, it is possible that commission payments of the type received by Mr Lock will be treated differently to overtime and may not have to be included in holiday pay.

Background to the case

Last year the ECJ ruled that Mr Lock should, as a matter of EU law, have commission included in his holiday pay.  He was paid a basic salary of £14,670 per year plus commission which was linked to his performance as an ‘energy trader’ (his job was to obtain new customers for British Gas, and persuade existing ones to upgrade their accounts).    

Mr Lock did receive the benefit of the commission he had already earned when he took annual leave, but he complained that he could not earn commission during his holiday which impacted on the salary he received in later months. 

He argued that his salary should have been enhanced to reflect the amount of commission he would have earned, otherwise this could deter workers like him from taking a holiday.

The ECJ agreed.  To understand the reasoning for this, it is necessary to consider the rationale which underpins the Working Time Directive.  The requirement to provide workers with paid holiday is a health and safety initiative – implemented to ensure that workers take a break from the demands and stresses of work.  It is regarded as a particularly important principle of social law, from which there can be no derogations. 

Workers must not be discouraged from taking leave.  Therefore the pay they receive whilst absent, must generally correspond to what they would have received had they been at work. 

In Mr Lock’s case, commission amounted to 60% of his earnings, and he could not earn commission whilst on holiday – a clear deterrent from taking time off. 

The case then returned to the Employment Tribunal, where the question for determination was whether the Working Time Regulations could be interpreted so as to give effect to EU law.

The Tribunal’s decision

The Tribunal found that UK legislation could be read so as to be consistent with the ECJ’s decision and it achieved this by adding new wording to the Regulations.  This meant that worker’s whose remuneration included commission or similar payments, should have their holiday pay calculated in the same way as workers whose pay varied according to how much work they actually do.  Commission will have to be included in the calculation.

It was anticipated that new dates would be listed to hear the substantive elements of Mr Lock’s claim i.e. what compensation should be paid by British Gas to ensure that workers like Mr Lock are not disadvantaged by taking a holiday.  However, these issues will be stayed, pending the outcome of British Gas’s appeal.

Grounds of appeal

It is reported that British Gas has raised the following arguments:

  1. Commission and non-guaranteed overtime are dealt with under different provisions, which use different language, and the Tribunal incorrectly concluded that the EAT’s decision in Bear Scotland (a case that examined non-compulsory overtime) had any bearing on the case of Lock.
  2. The EAT in Bear Scotland incorrectly concluded that our domestic legislation could be interpreted purposively to give effect to EU law.

Is the appeal likely to be successful?

It is impossible to say whether British Gas will be successful.  However, the arguments it appears to be raising, were examined by the EAT in Bear Scotland and rejected.  It is difficult to see the EAT reaching a different conclusion simply on the basis that there is a difference in principle between payment for non-guaranteed overtime and payment in respect of commission to determine how much a worker is entitled to receive when taking annual leave. 

That said, the EAT did give the parties in Bear Scotland the right to appeal (but this was not exercised) so the issue may have to be determined by a higher court before businesses know where they are. 

The WTR’s were introduced to implement the Directive and include the definition of a ‘week’s pay” set out in the Employment Rights Act ss221-224. 

This divides workers into those with and without ‘normal working hours’.  Those without are entitled to be paid based on a 12 week average and those with were paid the amount they would have received had they worked these hours. 

The overriding principle of the ECJ is that workers are entitled to receive ‘normal pay’ when taking a holiday and must not be disadvantaged from doing so (by receiving less than their normal pay either during their holiday, or when they return to work).  The direction of travel therefore clearly suggests that commission payments should be included.

What happens now?

The appeal is likely to be heard by the end of this year. We expect that the EAT (whatever decision is reached) will allow the parties to appeal to the Court of Appeal, which may mean that the law will remain in a state of confusion for some time. 

Tribunals are likely to be asked to stay any cases which hinge on similar arguments, which will leave businesses and claimants in a hiatus.