The Employment Appeal Tribunal (EAT) has today released its eagerly anticipated decision in the appeal of the case of Lock v British Gas. The EAT has rejected the appeal of British Gas, and as such, have found that commission payments should be included in holiday pay.

British Gas has since requested to take the case to the Court of Appeal, which, if allowed, will see the continuance of the holiday pay saga for some time to come.

The story so far

The Lock case was first heard in 2012, when it was held that it is necessary to add words to the Working Time Regulations 1998 to give effect to the European Working Time Directive. Article 7 of the Working Time Directive requires "normal remuneration" to be paid during periods of holiday. It is accepted that European Union law considers "normal remuneration" to include elements such as commission, however this only binds directly on public sector employers. In coming to its decision in Lock, the Employment Tribunal adopted the approach of Bear Scotland v Fulton, which saw the EAT decide that UK domestic law (applicable to all employers) should be interpreted in such a way as to achieve consistency and conformity with EU law. In practical terms, the EAT decision in Bear Scotland made it clear that "non-guaranteed" overtime should also be included in the calculation of pay during annual leave taken under the Working Time Directive, as those "non-guaranteed" overtime payments are intrinsically or directly linked to an employee's work.

On appeal, the employer in Lock argued that:

  1. Bear Scotland was wrong in law to conclude that it was possible to interpret the Working Time Regulations to ensure compliance with the Working Time Directive;
  2. The decision in Bear Scotland is not binding on the EAT and should not be followed;
  3. Bear Scotland and Lock are distinguishable cases, as non-guaranteed overtime payments are directly related to a statutory provision, while results-based commission enjoys no similar statutory provision.

Today's Decision

Taking into account the above submissions, the EAT has rejected the appeal of British Gas.  In today's judgment, the EAT has outlined that it believes Bear Scotland and Lock are not distinguishable cases, and that there is nothing in the current statutory language that would give rise to different results in the two different scenarios of non-guaranteed overtime and commission.

The EAT has also been clear that it has not been persuaded to depart from the earlier decision in Bear Scotland, and has stated that while previous cases are not binding, they are of persuasive authority. It can find nothing "manifestly wrong" with the decision inBear Scotland, nor are there exceptional circumstances that require them to depart from it. Furthermore, the EAT has held that ifBear Scotland was wrongly decided, this is something that the Court of Appeal should rule on, and that it would be inappropriate for the EAT to consider its merits. As such, the original Tribunal in the Lock case was right to follow the ruling of Bear Scotland.

In summary, commission payments are to be included in holiday pay calculations…for now.

What does this mean for the employer?

British Gas are set to appeal this decision to the Court of Appeal, meaning that the holiday pay saga is far from over. An appeal would see a re-evaluation of the decision of Bear Scotland, and any such appeal is most likely not going to be heard until 2017.

Bear Scotland itself is also likely to go back before the EAT this year but this is on the issue of whether the right to claim historic arrears of holiday pay ceases if there is a gap of 3 months or more from the date of the last underpayment.