The Supreme Court has refused British Gas permission to appeal in the latest chapter of this long running case which is now very familiar to employment lawyers and HR professionals. The case, one of a number brought in relation to the calculation of holiday pay, represents a significant shift in the way that holiday pay is calculated for those whose pay is based on results-based commission.

The facts

Mr Lock worked as an energy sales consultant for British Gas. His remuneration was made up of a basic salary and commission. On average, commission made up 60% of his salary. When he was on holiday, Mr Lock did not receive any commission-based pay.

Mr Lock brought a claim in the Employment Tribunal. The Employment Tribunal referred the case to the European Court of Justice (ECJ) to determine the answers to certain questions. The ECJ ruled that, under the Working Time Directive, commission which is intrinsically linked to the performance of tasks that a worker is required to carry out under his contract of employment should be included when calculating pay in respect of the statutory holiday periods. When considered further by the Employment Tribunal, it held that it was possible to interpret domestic legislation to comply with European legislation by adding the relevant words into the Regulations (although this only applies to the four weeks of annual leave under the Working Time Regulations and not the additional 1.6 weeks).

The decision was upheld by both the Employment Appeal Tribunal (EAT) and the Court of Appeal (although limited to results-based commission). British Gas then sought permission to appeal from the Supreme Court.

The Supreme Court has refused British Gas permission to appeal the Court of Appeal decision. This means that there is no further right of appeal available.

The case now returns to Leicester Employment Tribunal to determine:

  • Whether the commission scheme effectively already took into account holiday periods, and therefore there was no loss
  • If holiday pay is due, what is the correct reference period to determine the calculation

Impact of the decision

The decision means that the calculation of a worker’s statutory holiday pay should take into account any results-based commission earned.

Mr Lock’s case is a lead claim for a significant number of results-based commission claims. There are several thousand similar claims against other respondents. The case effectively gives the ‘green light’ for other claims of a similar nature involving results-based commission to proceed to a hearing. However, any claims brought on or after 1 July 2015 are limited to deductions relating to the previous two years only.

The impact on organisations could also be extremely significant. Organisations who remunerate their employees largely through commission could face claims from workers that payments for annual leave already taken should have included commission, but did not do so. Organisations affected will also need to include payment for any results-based commission in holiday pay, however the correct reference period is yet to be confirmed. Organisations should also consider whether they now need to review their commission scheme arrangements in light of this decision.

The position on calculating holiday pay for bonus, overtime payments, and irregular or occasional commission payments is still to be determined.