The Employment Tribunal recently decided that words could be added to the Working Time Regulations 1998 (WTR) to allow conformity with the Working Time Directive (WTD). This approach meant that private sector employers were obliged to include commission payments in the calculation of holiday pay. Lawyers acting for British Gas have recently announced that British Gas are to appeal this decision. If the appeal is successful, the Government would need to rewrite the WTR and any changes would not be retrospective

Background

In May 2014 the ECJ ruled that the WTD requires that during annual leave workers must receive their normal remuneration. The purpose of holiday pay is to put the worker, during that period of rest, in a situation which is comparable to periods of work. It ruled that where pay is made up of different components (such as commission payments) and a component is "intrinsically linked" to the worker's contractual duties, then holiday pay should be calculated to include such payments.  On the issue of how such commission payments should be calculated, the ECJ held that it was for the national courts to assess whether calculation on the basis of an average figure over a representative reference period would achieve the objectives pursued by the WTD.  You can read our full report on the ECJ decision here.

Following the ECJ's ruling the case returned to the Employment Tribunal (ET) in February this year to decide whether the WTR could be interpreted in line with the ECJ’s decision. If it could not, then employees of private sector employers would not be able to enforce their rights to have such payments included in their holiday pay and the Government would be required to amend the WTR.  The ET decided that the WTR could be interpreted so as to be consistent with European law, by inserting words into the WTR.  You can read our full report on the ET decision here.

Appeal

Lawyers acting for British Gas have recently announced that British Gas will appeal the ET's decision on two grounds:

  • The ET was wrong to conclude that the EAT's recent decision in Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others, Amec Group Limited v Law and others (Bear Scotland) (i.e. that the WTR could be read purposively to give effect to the WTD requirement to include non-guaranteed overtime in holiday pay) had any bearing on the Lock case. Commission and non-guaranteed overtime are dealt with under different provisions and should be treated differently.
  • In any event, even if it was appropriate to approach overtime and commission in the same way, the EAT in Bear Scotland had been wrong to decide that the WTR could be read purposively.  This is the more significant ground of appeal, since if it were successful then it would also overturn the position on the inclusion of non-guaranteed overtime in holiday pay.

The appeal is expected to take place later in 2015.

Comment

The position at EU level is unchanged by this appeal: UK law must provide for holiday pay to be based on normal remuneration, which may include commission payments.  However, if British Gas are successful then the Government would need to rewrite the WTR before private sector employers would be obliged to comply with this requirement (and any changes would not retrospective).  Whatever the outcome of the appeal, it seems quite likely that there will be a further appeal to the Court of Appeal, which could mean waiting until the latter part of 2016 or early 2017 for a further ruling.

Also, running in parallel to the Lock litigation, is the Northern Irish case of Patterson v Castlereagh Borough Council.  This case concerns the inclusion of genuinely voluntary overtime in holiday pay and is due to be heard by the Northern Irish Court of Appeal on 17 June 2015.  Any further appeal would be to the Supreme Court of the United Kingdom.

Given the ongoing litigation concerning the calculation of holiday pay, employers may wish to take a more robust stance when it comes to making adjustments to holiday pay.  Many will prefer to wait for a definitive ruling from the Courts.