Lock and another -v- British Gas Trading

British Gas has been refused leave to appeal by the Supreme Court in the long-running case regarding the payment of commission during periods of holiday.

Background

Over recent years, a number of cases before the Court of Justice of the European Union (CJEU) have sought to challenge the calculation of holiday pay on the basis that reference to normal salary alone potentially places some workers at a financial disadvantage during periods of annual leave.

The case of Lock -v- British Gas (Lock) specifically relates to the inclusion of commission payments in holiday pay (but is closely linked to similar cases regarding overtime). In brief, Mr Lock was a sales person who claimed in the employment tribunal that he was owed money on the basis that his holiday pay did not reflect what he would have earned from results-based commission. On top of his basic pay, he received a monthly commission, which fluctuated based on his sales. As such, his pay was lower in the pay run immediately following annual leave.

Decision of the CJEU

The Tribunal referred the matter to the CJEU. It held that where a worker's remuneration includes contractual commission determined with reference to sales achieved, the Working Time Directive (WTD) precludes a national law that calculates statutory holiday pay based on basic salary alone. If commission payments are not taken into account, the worker will be placed at a financial disadvantage when taking statutory annual leave as 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 would be contrary to the WTD's purpose.

Lock was remitted to the Leicester Employment Tribunal to provide further guidance on how payments should be calculated, however no determination has yet been made in this regard.

Appeals

Lock has been the subject of multiple appeals by British Gas and most recently was considered by the Court of Appeal. Judgment was handed down on 7 October 2016. Specifically, the CA confirmed only that the relevant domestic legislation (the Working Time Regulations 1998) must be interpreted as requiring holiday pay to take account of results-based commission during the first four weeks’ holiday in each holiday year.

British Gas sought leave to appeal to the Supreme Court but this was refused on 28 February 2017.

This latest development does not change the position at law but does appear to signal the end of the road for British Gas. Notwithstanding the fact that the courts have been clear that a sum in respect of results-based commission should be included in holiday pay, the issue of how to calculate this remains unanswered. We await further guidance from the Employment Tribunal in this regard – in the interim, our best advice is that it is up to individual employers to determine what they consider to be a sensible reference period.

It is also notable that the recent developments regarding holiday pay arise directly from European law. As such, it is possible that the position could change again depending on the terms of Brexit.