The European Court of Justice has ruled that British Gas had been in breach of the Working Time Directive by limiting Mr Lock’s holiday pay to his basic pay, despite the fact that a significant proportion of his total earnings came from commission.
This ruling is not surprising, given the comments the ECJ made in the British Airways pilots case (see our briefing here for more details). That decision made it clear that statutory holiday pay under the very similar provisions of the Aviation Directive should include all elements “intrinsic” to the job in question. By implication that clearly includes commission.
The difficulty the employment tribunal making the reference faced is that there is a Court of Appeal decision from 2002 (Evans v Malley Organisation) which in effect says that commission need not be included in holiday pay. That decision derives from a somewhat controversial interpretation of the provisions defining a week’s pay, which are imported from the Employment Rights Act into the Working Time Regulations.
Rather unhelpfully, the ECJ has left it to our domestic courts to work out how commission should be reflected in holiday pay. One obvious solution would be adopt the averaging provisions in the definition of a week’s pay, which apply when the amount of pay “varies with the amount of work done”. Despite the fact the Court of Appeal in Evans v Malley did not think that wording was apt to include commission arrangements, the EAT reached the opposite conclusion in the same case. If the EAT’s approach is adopted, then it would simply be a question of averaging out the total remuneration the worker received over a 12 week reference period in order to calculate the weekly amount due.
Whatever the final outcome once the case returns to the employment tribunal, many employers are likely to face a significantly higher bill for holiday pay. It is worth adding that this extra liability probably does not extend to any holiday entitlement in excess of the four week minimum guaranteed by the Working Time Directive.