Leicester. The tenth largest city in the UK and one of the oldest. Home of “the Foxes” and the burial ground of Richard III. Now the latest voice in a long running saga watched closely by employers, employees and employment lawyers alike: holiday pay. (Pause for collective sigh.)

  • Commission payments are included when calculating holiday pay.
  • The EAT does not answer the question as to what reference period employers must use when calculating holiday pay.

We wrote to you towards the end of last year about this thorny topic. We continue to work with many organisations who are grappling with the increasingly vexed question of how to calculate holiday pay. Employers  face the challenge of understanding the extent to which they must now include overtime, commission and other elements of remuneration in holiday pay. And as well as understanding these (somewhat unclear) obligations, organisations are faced with the increasing costs of compliance and the need to fund potential historic liabilities.

Today we want to let you know about this week’s much awaited Leicester Employment Tribunal judgment in Lock v British Gas and what it means for employers. The judgment does not add anything new to our collective holiday pay wisdom.

A quick recap

  • In November, the Employment Appeal Tribunal handed down its judgment in  the Fulton case on overtime and holiday pay. Fulton confirmed that UK employers must include non-guaranteed (as well as guaranteed) overtime in calculating holiday pay for the purposes of the annual leave which is required under the Working Time Directive (Directive Leave) but not the additional leave required by the UK’s Working Time Regulations or (subject to its terms) by any employment contract.
  • Anticipating the impact of Fulton on UK business, in December the government introduced regulations to limit most backdated holiday pay claims to two years. But, this limitation only applies to claims presented to the Employment Tribunal after 1 July 2015.
  • Although Fulton was a landmark case,  it was not the final word on holiday pay. In fact, we were left with a number of unanswered questions including:
    • Should truly voluntary overtime be included in holiday pay? How about bonuses and other elements of remuneration?
    • What reference period should be used when averaging remuneration in order to calculate holiday pay? How should commission be calculated for these  purposes?
    • What is the long-stop date for claims where a series of deductions can be traced back without a break in the chain?

Lock v British Gas

Lock is a long-running case which has made its way from Leicester to Europe and back again. On the European leg of its travels the case told us that commission must be taken into account in holiday pay (which was not what the UK Working Time Regulations had said). Europe did not tell us how that commission should be calculated and, as mentioned above, Fulton also did not deal with this question. Hopes of clarity from the Leicester Employment Tribunal were high.

This week’s judgment gives a helpful summary of the law and history of these complex issues and confirmed that commission must be taken into account by UK employers for the purposes of pay for Directive Leave. But, Lock does not answer any of the unanswered questions set out above. In particular, what reference period must employers use in their calculations? The Tribunal has deferred this question to another day. Will it be 12 weeks, some other period (eg 12 months) or a variable factor depending on the specific commission scheme? We will have to wait and see.