The Court of Appeal has handed down its decision in a case dealing with statutory holiday pay and whether this should be calculated to include commission payments.

British Gas Trading Limited v Lock, Court of Appeal 

Facts

This long-running case concerns the question of whether contractual, results-based commission should be included in the calculation of statutory holiday pay under the Working Time Regulations 1998.

The case was referred to the European Court of Justice before returning to the employment tribunal and then the EAT, both of which held that the Working Time Regulations (WTR) should be interpreted as meaning that commission should be included in the calculation of statutory holiday pay in line with the decision in Bear Scotland and others v Fulton concerning overtime (see our previous bulletin).

British Gas appealed to the Court of Appeal.

Court of Appeal decision

The Court of Appeal has upheld the EAT’s decision, agreeing that contractual, results-based commission should be included in the calculation of statutory holiday pay under the WTR 1998.

The key issue being decided was whether a conforming interpretation of the WTR was within the ‘grain or underlying thrust of that legislation’. After ‘wavering’, Sir Colin Rimer concluded that it was, and that the WTR should be interpreted in such a way that Mr Lock could have his ‘normal remuneration’ (which included commission) used as the basis for calculating his statutory holiday pay.

Consequences

Frustratingly, the Court made no observations on the practical question of how an employer should determine the appropriate reference period when calculating holiday pay to include commission. However, the Court was clear that issues such as bankers bonuses and whether they should be calculated to include holiday pay, and what to do when commission payments are dependent on reaching turnover thresholds, were not intended to fall under the scope of this decision. No doubt there will be further cases brought to answer these ongoing questions.

At the time of the appeal, British Gas indicated that it had around 1000 workers who would be impacted by the outcome of the case and, employers have been subjected to a sustained period of uncertainty with respect to both the calculation of holiday pay, and also their liability for any past unlawful deductions. In respect of the commission element, there is for the time being perhaps a little more clarity, although indications are that British Gas has applied for permission to further appeal to the Supreme Court, which would mean no end to this saga until Autumn 2017 at the earliest.

The content of this article is for general information only. For further information regarding working time and holiday pay, please contact a member of Birketts' employment team. Law covered as at October 2016.