The Court of Appeal confirmed that the Working Time Regulations 1998 must be interpreted as requiring holiday pay to take account of results-based commission that would ordinarily be paid to an employee.

In this case Mr Lock had been a salesman for British Gas, who on top of his basic salary was paid a monthly commission that fluctuated based on his sales. However, when absent on holiday leave Mr Lock’s holiday pay did not reflect any of the commission he would have earned had he been working. Mr Lock therefore issued a claim in the Employment Tribunal that British Gas had failed to properly calculate his holiday pay and therefore owed him money.

This issue was considered by the European Court of Justice (ECJ) that ruled that since Mr Lock’s commission is directly linked to the work he carries out, it should be taken into account when calculating holiday pay. The case then returned to the Employment Tribunal for the ECJ ruling to be applied in UK law.

In order to apply the ruling of the ECJ the Employment Tribunal added an extra subsection into the Working Time Regulations 1998 and its decision was appealed by British Gas, first to the EAT, and then to the Court of Appeal.

The Court of Appeal upheld the decision of the Employment Tribunal. As a consequence it confirmed that when calculating an employee’s holiday pay entitlement, in respect of the first four weeks of their holiday entitlement, employers must include results-based commission in their calculation.

Unhelpfully, this decision has still left us with a number of unanswered questions, most notably being the issue of how to calculate holiday pay to take account of results-based commission. Whilst the Advocate General’s opinion suggested an average should be taken over a 12-month period the Court chose not to offer any guidance on this issue. We continue to await further guidance on the point.