The long awaited decision on Lock v British Gas has now been delivered by the Tribunal. This clarifies that in at least certain cases, employers must factor in commission payments when calculating holiday pay for the 4 week holiday leave entitlement under regulation 13 of the UK Working Time Regulations (WTR).
Lock v British Gas
To recap, this case concerns the salesman Mr Lock who received variable commission based on sales achieved. He continued to receive commission for sales made before and after his holiday, but he received base pay only for the period he was on holiday leave. He brought a claim in the Tribunal arguing that commission should have been included in his holiday pay.
The Tribunal referred the case to the Court of Justice of the European Union (ECJ). ECJ concluded that EU law (the Working Time Directive ("the Directive")) requires commission to be included in the calculation of holiday pay for the 4 week period of holiday guaranteed by the Directive. Details of our previous report on the ECJ decision can be found HERE.
This case returned to the Tribunal to decide whether this principle of EU law could be read into the UK domestic law i.e. the WTR.
The Tribunal ruled that the UK WTR should be read so as to be consistent with the ECJ’s ruling on the Directive and that, therefore, Mr Lock was entitled to commission payments in respect of the 4 week entitlement under regulation 13 of the WTR. The decision only applies to this 4 weeks and not to either the additional 1.6 weeks' leave entitlement provided for in the UK WTR or to contractual holiday.
In this case the Tribunal said that regulation 16(3) of the WTR should be read as if it had the following paragraph added to it:
"(e) as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221."
There will be further hearings at a later date to deal with other issues, including the correct reference period for the calculation of holiday pay and the value of the claim for the particular claimants in this case.
It is important to note that the decision was on the facts of this case. It does not preclude employers with different types of schemes from arguing that their arrangement does not fall foul of the Directive and therefore commission is not due and the extra words should not be read in. Nevertheless, this decision is very significant for employers who pay commission but do not include it in holiday pay. Key points which employers should take away from this case are as follows:
- This judgment relates to the 4 weeks of holiday guaranteed by the Directive only. It does notoblige employers to pay commission for the additional 1.6 weeks of holiday required under the WTR or any additional contractual holiday pay over and above that. Employers will need to consider, however, whether operating different approaches for different types of holiday is too impractical.
- Employers may want to wait to see the outcome of a further hearing which will determine what reference period should be used for the calculation of such holiday pay. This can then assist Employers to assess their potential exposure for such claims.
There is a possibility that there will be an appeal against the Tribunal decision. Employers will need to consider whether to amend their holiday pay calculations now or to wait and see whether any appeal is lodged.
- The time limit for unlawful deductions from wages claims arising from underpaid holiday payments is three months after the last in the series of deductions. However, the EAT in Bear Scotland Ltd v Fulton and others determined that a gap of 3 months or more between underpayments would break the series. From 1 July 2015 a 2 year cap on backdated claims will apply.
- If employers do amend their holiday pay calculations and, as is common, commission fluctuates over the year, some employees may see an opportunity to maximise their holiday pay by taking holiday immediately after a period when they expect to receive large commission payments. Employers may want to consider rejecting requests and requiring holiday to be taken at a different time when the impact of commission is less marked.
- The British Gas scheme involved regular amounts of variable commission, and the outcome could have been different with other types of schemes where absence on holiday would not impact the ability to earn commission.
In relation to overtime pay, the EAT in Bear Scotland Ltd v Fulton and others has already ruled that pay for "non-guaranteed overtime" must be included when calculating the 4 weeks of holiday guaranteed by the Directive. See our previous alerts HERE and HERE.