The latest chapter in the ongoing litigation around the Working Time Directive and whether commission payments should be included in holiday pay has been delivered by the EAT. The EAT has upheld the decision of the Employment Tribunal that domestic legislation could be interpreted in a way which conforms to the requirements of the Working Time Directive (the "WTR").
By way of reminder, Article 7 of the Directive provides that member states must ensure that workers have the right to at least four weeks' paid annual leave. However, it does not specify how this should be calculated. The Directive is implemented into UK law by the WTR, which provide workers with 5.6 weeks' annual leave (i.e., in the UK workers are entitled to more holiday than the minimum required by the Directive).
Workers are entitled to be paid at the rate of a week's pay for each week of leave, calculated in accordance with provisions contained in the Employment Rights Act 1996 ("ERA 1996"), which makes a distinction between employees with "normal working hours" and those with "no normal working hours". Generally, a worker with normal working hours will have a week's pay calculated by reference to those hours. A worker without normal working hours will have a week's pay based on average weekly remuneration (including certain overtime pay, bonuses and commission) over a 12-week period.
Mr Lock was employed by British Gas Trading Limited as an internal energy sales consultant. He received a basic salary plus commission on the sales that he achieved. The commission made up approximately 60% of his remuneration. Mr Lock had normal working hours, whose remuneration did not vary with the amount of work done (rather it varied based on the sales he achieved). As a result, based on the WTR, his holiday pay was calculated on his basic salary only and did not incorporate his commission.
Mr Lock took statutory annual leave between 19 December 2011 and 3 January 2012. His holiday pay during this period was based on his basic salary only and did not incorporate any commission. Mr Lock brought a claim in the Employment Tribunal under the WTR for the commission he could have earned had he not been on holiday for the period he was on holiday.
The Employment Tribunal referred questions to the ECJ, including the following: does Article 7 of the Directive require holiday pay to be calculated in such a way as to reflect the loss of commission caused by being away on leave?
The ECJ held that, where a worker's remuneration includes contractual commission, determined with reference to sales achieved, the Directive precludes a national law that calculates statutory holiday pay based on basic salary alone and fails to account for commission. The ECJ stated that if commission payments are not taken into account, the worker will be placed at a financial disadvantage when taking statutory annual leave; no commission will be generated during the holiday period. In such circumstances, the worker might be deterred from exercising the right to annual leave, which is contrary to the purpose of the Directive.
The ECJ referred the case back to the original Employment Tribunal to determine how this ruling should be applied to UK law. The Employment Tribunal responded by adding wording to the WTR (adopting the approach taken in Bear Scotland v Fulton on the interpretation of domestic legislation) which means that under UK law employees with normal working hours who receive commission should have that commission included in the calculation of their holiday pay.
British Gas appealed the Employment Tribunal's decision arguing that the decision in Bear Scotland could be distinguished because it concerned non-guaranteed overtime (which was dealt with specifically by section 234 of ERA 1996). If that was wrong, then Bear Scotland was wrongly decided as there is a Court of Appeal decision, Bamsey v Albon Engineering & Manufacturing plc, which should have been followed. In any event, Bear Scotland is not binding on the EAT and should not be followed.
The Secretary of State intervened stating that the Employment Tribunal decisions should be upheld.
The EAT, upholding the decision of the Employment Tribunal, stated that it was not possible to distinguish Bear Scotland. Though the EAT is not bound by its own previous decisions, they are of persuasive authority and will accord respect to them and generally follow them. There are established exceptions to this principle but none of those apply to this case. The EAT did not view the decision in Bear Scotland as "manifestly wrong". In any case, if Bear Scotland was wrongly decided then it must be for the Court of Appeal to say so. In addition, the decision of Bamsey was no longer binding because it had been decided before the subsequent ECJ case law on the meaning of Article 7 and, therefore, was no longer based on good law.
A further tribunal case in this litigation was expected to deal with the basis on which holiday pay should be calculated, but it is understood that British Gas is seeking permission to appeal the EAT's decision to the Court of Appeal, so that decision is likely to be delayed.
There are several issues that remain unclear following this latest chapter relating to how to deal with claims relating to underpaid holiday and how to calculate holiday pay going forwards. Should employers look at the previous 12 weeks' pay, or look at overall remuneration over the course of a year? The Bear Scotland litigation is also still ongoing which looks at whether claims are time-barred if more than three months have elapsed between deductions. Until these matters are resolved, it remains an area of considerable uncertainty.