Introduction
Facts
Decision
Comment


Introduction

On October 7 the Court of Appeal released its judgment in the ongoing holiday pay case British Gas Trading Limited v Lock.(1) The case raises the question of whether and how a salesperson's commission should be taken into account when calculating holiday pay.

On the face of domestic legislation, commission seems to be excluded from calculations of holiday pay (the Working Time Regulations 1998, which implement the EU Working Time Directive). However, the European Court of Justice (ECJ) decisions confirm that the minimum four-week holiday entitlement needs to be paid at a rate that reflects normal remuneration.

Facts

In 2014, the ECJ decided that Mr Lock's commission amounted to normal pay and should therefore be included in his holiday pay. Back in the United Kingdom, the question then arose as to whether the regulations could be interpreted compatibly with the directive and the ECJ's case law. The Government Legal Department, which was also a party to the case, argued (along with Lock) that a compatible interpretation was "both possible and correct". The Employment Appeal Tribunal (EAT) agreed and decided that it was possible to interpret the regulations compatibly with EU law. The practical effect of this for UK workers was that pay from results-based commission would be included in the calculation of holiday pay for the four weeks of statutory holiday required by EU law.

British Gas appealed this decision. It argued that it was not open to the UK courts to interpret the domestic provisions compatibly with the directive, as the two simply said different things. These arguments focused on legal principles of statutory interpretation and, for the purposes of understanding the implications of this judgment for the calculation of holiday pay, it is not necessary to examine them in detail.

Decision

The Court of Appeal agreed that it was possible to interpret the regulations compatibly with EU law. It considered that Parliament had simply not envisaged this scenario or intended that the regulations as drafted would result in different types of worker being treated differently in terms of holiday pay. This did not involve an impermissible repeal or an amendment of the domestic legislation, even though it was necessary to add extra words to the statute to achieve this result, and it did not amount to "judicial vandalism".

Given the way that the tribunals and courts have dealt with the issue of holiday pay and the interpretation of the regulations to date, it comes as little surprise that the Court of Appeal has taken this approach. How this interpretative duty might evolve once the United Kingdom leaves the European Union remains to be seen, but in any event this will not occur until at least March 2019.

The Court of Appeal expressly declined to comment on how other types of payment – such as annual bonus payments or commission pay based on company targets being met – should be treated for holiday pay purposes. It specifically said that "nothing in this judgment is intended to answer" such questions. Such issues therefore remain undecided and potentially open to a different interpretation. The Court of Appeal also commented that the EAT's amending words which need to be read into the regulations were too wide because they referred to all types of commission and were not sufficiently centred on the circumstances of Lock's case. In the Court of Appeal's view, the wording to be read into the statute should be limited to contractual results-based commission.

Comment

Apart from the Court of Appeal's caution in limiting the decision and its consequences to the specific type of commission involved in this case, the situation remains largely unchanged since the EAT's decision.

There may yet be a further appeal to the Supreme Court. British Gas may be encouraged by the judge's comments that he did not find this an easy decision and that British Gas's incompatibility argument "merits serious consideration". However, even when these preliminary issues are resolved, it still remains for the EAT to decide on the substance of the matter –whether Lock was underpaid and by how much. This will be the really interesting aspect of the case and only then will employers potentially have the guidance they need to amend their holiday pay practices, if relevant. In the meantime, a 'wait and see' approach to commission-based holiday pay remains sensible.

For further information on this topic please contact Anna Sella at Lewis Silkin by telephone (+44 20 7074 8000‚Äč) or email ([email protected]). The Lewis Silkin website can be accessed at www.lewissilkin.com.

Endnotes