Commission can and should be included in WTR holiday pay and words should be read into the WTR to ensure this can happen. That's the decision of the Court of Appeal in British Gas v Lock. However, the Court refused to say if the same applied in other cases, for example where employees receive a single, large results based bonus.
Mr Lock worked as a salesman for British Gas. He was paid commission which greatly exceeded his basic salary. Whilst on holiday, he was paid at the rate of his basic salary. He claimed that British Gas should include a commission element for holiday he took in 2011 and 2012 and that he was owed £1,500 as a result. An Employment Tribunal and the Employment Appeal Tribunal (EAT) agreed with him. Both Tribunals found that words needed to be read into the WTR to make clear that "remuneration" includes commission for the purposes of holiday pay under the WTR. They decided this was necessary to ensure that UK complied with the Court of Justice of the European Union's (CJEU) interpretation of the Working Time Directive (WTD) that all normal remuneration needs to be included in holiday pay under the WTD. British Gas unsuccessfully appealed. In summary, the Court of Appeal accepted that words had to be read into the WTR to ensure it was consistent with the WTD meaning commission should be included in WTR holiday pay. The Court's reasoning is also in line with the Bear Scotland decision that WTR holiday pay should include obligatory but non guaranteed overtime. The Court refused to give views on whether the same principle applied in other situations such as annual bonuses and specifically stated it was only deciding Mr Lock's case.
What does this mean for employers?
This is a very clear decision on commission and one which also supports the Bear Scotland decision that obligatory, non guaranteed overtime has to be included in WTR holiday pay up to four weeks (or the pro rata equivalent). However, the Court's decision is not a general acceptance that all forms of additional pay have to be included in WTR holiday pay. So, the position on payments like annual bonuses and voluntary overtime remain unresolved in our view. Nor did the Court have to answer other practical questions like:
- How the calculation is to be done and what happens when a worker receives an unusually large payment once a year and the employee happens to take WTR holiday immediately after it;
- What time limits apply and how far back employees can go in bringing a claim. That means that the Bear Scotland decision confirming the three month time limit for bringing an unlawful deduction from wages claim still applies.
Also, remember this decision only effects the first four weeks of WTR holiday pay each year (or the pro rata equivalent for a part-timer), it does not effect WTR or contractual holiday pay over and above 20 days. It is four weeks because that is the amount of holiday the WTD requires.
We do not know yet if British Gas will be seeking to appeal this decision to the Supreme Court. We think this will not be the last word on WTR holiday pay. We consider employers can legitimately argue that there are several outstanding questions on WTR holiday pay.
Will Brexit assist employers here? We do not think so. The UK remains a member of the EU, subject to EU laws until the Article 50 notice (which of course has not yet been served) expires. Also, the Prime Minister has indicated that, as and when the UK ceases to be a member of the EU, legislation will be introduced preserving all UK law introduced to comply with EU law (which of course includes the WTR) whilst the government decides what to do with each of these many thousands of laws.