The Employment Appeal Tribunal (EAT) has confirmed that employers must take results-based commission into consideration when calculating an employee's "European" holiday pay. This is consistent with a decision in a different case (Bear Scotland v Fulton 2015), which decided that non-guaranteed overtime pay should be included when calculating holiday pay.

This will not be good news for British Gas, which is currently facing some 918 holiday pay claims against it, from around the UK.  However, the case provides some welcome further clarification on what remains an uncertain area.

Background

Mr Lock was a British Gas salesman, who was paid commission based on the sales that he made.  Mr Lock's commission was not based on the amount of work that he did, only on the outcome of that work.  The commission that he earned was greatly in excess of his basic salary

As he could not earn commission whilst taking holiday, Mr Lock was only paid his basic pay whilst taking annual leave, plus any commission which he had earned in previous weeks but which happened to be paid during that time. 

Mr Lock challenged this approach, saying that it breached not only UK regulations (Working Time Regulations 1998) but also EU law.  The EU court considered the question of what should be included in a worker's holiday pay and concluded that a worker's pay should be maintained, so that they receive their normal remuneration for a period of annual leave.

As the EU court's decisions are binding on the UK, the next question to consider was whether UK law could be interpreted in a way that conformed to EU law, or whether the government would actually have to amend the regulations to ensure consistency.

What happened?

The Employment Tribunal decided that there was no need actually to amend the UK regulations to comply with the EU law: instead it said that it was sensible to read the regulations as if they said that: where an employee with normal working hours, receives commission as part of their pay package, then holiday pay should be calculated in the same way as an employee without normal working hours, with variable pay, that is by calculating the worker's average pay over the previous 12 weeks.

What did the court decide?

British Gas appealed against the Tribunal's decision to the Employment Appeal Tribunal.  They acknowledged that in a previous decision, non-guaranteed overtime had been found to be included in holiday pay, but alleged that Mr Lock's situation was different.  The judge disagreed, finding that there was actually very little to distinguish between the two cases.

British Gas also said that the Tribunal was wrong to decide that UK law on holiday pay could be read in such a way as to make it compatible with the EU law.  The judge gave this argument short shrift.

Finally British Gas argued a technical point that the judge did not need to follow an earlier decision of an Employment Appeal Tribunal.  Once more, the judge disagreed. 

Instead, the judge agreed that Mr Lock's holiday pay should include sums that he would have otherwise received as commission had he been at work rather than taking holiday.

Practical points

Employers should take note of this decision.  It is likely to be well publicised and employees will become aware that from now on an employee will be entitled to be paid as if they were earning their usual commission, when they take the first four, EU mandated, weeks of their annual leave (what we call "European" holiday leave).  The decision does not apply to the next 1.6 weeks of annual leave provided by the UK regulations, nor any contractual entitlement over that.  An employee could enforce this right to increased holiday pay by bringing a claim for unlawful deduction from wages.

Further reading

Another day trip in the holiday pay saga – 26 March 2015

Holiday pay update: Good news for employers? – 22 December 2014

UK update on holiday pay - implications for employers in the construction industry - 6 November 2014

Holiday pay should include commission - 23 May 2014