The holiday pay saga continues with the Employment Appeal Tribunal (EAT) decision in British Gas Trading Ltd v Lock and another (UKEAT/0189/15/BA).
Much is riding on the case. According to the decision, Mr Lock's is the lead claim in around 918 cases against British Gas around the country. Many thousands of similar claims against other respondents have been stayed pending its outcome.
Mr Lock was a British Gas salesman paid a results-based commission based on the number and type of contracts he sold. Commission was not dependent on how much work he did. During holidays he was paid salary and any commission earned previously which was due for payment, but he did not generate any new commission. This reduced his income following his return. He claimed that his holiday pay should include commission and failure to pay was an unlawful deduction from wages.
The Working Time Directive (2003/88/EC) (Directive) entitles workers to four weeks' paid annual holiday, but does not spell out how holiday pay should be calculated. Our Working Time Regulations 1998 (WTR) implemented the Directive. They say that workers with “normal working hours” should normally receive holiday pay based on salary only (plus overtime, but only if guaranteed and compulsory).
Lock was previously referred to the Court of Justice of the European Union (CJEU). It held that the Directive requires that results-based commission that is not dependent on the amount of work done by the employee must be included in holiday pay calculations.
The case returned to the employment tribunal to decide whether the WTR could be interpreted to give effect to the Directive. If so, that is the interpretation courts and tribunals must use. If not, they must give effect to domestic legislation even though incompatible with EU law. Private sector employees would then have a remedy against the government for failing properly to implement the Directive (public sector employees can enforce directive rights directly against their employers).
By that stage, the EAT had held in Bear Scotland Ltd & Others v Fulton & Others  ICR 221 that the WTR should be interpreted in line with the Directive and holiday pay should reflect “normal remuneration”, including non-guaranteed overtime. Mr Lock won his tribunal claim. British Gas appealed. Its grounds included that the WTR cannot be interpreted in a way which conforms with the Directive and that Bear was wrongly decided and not binding on the EAT.
The EAT rejected the appeal, holding that the WTR should be interpreted in line with the Directive. There was no real difference between non-guaranteed overtime and commission when it came to holiday pay. The EAT was obliged to follow the earlier Bear decision. It was not manifestly wrong and there were no other exceptional circumstances which meant it should not be followed.
British Gas has sought permission to appeal to the Court of Appeal, but it seems likely that the EAT's approach will be upheld. The Lock decision does not spell out how the holiday pay calculation should be made. A separate tribunal hearing will value the claim.
The upshot of the holiday pay cases to date is that workers should receive “normal remuneration” during four weeks of their annual holiday. This includes pay: intrinsically linked to the tasks a worker is required to perform under contract; and relating to the worker's personal or professional status (such as payments connected with seniority, length of service and professional qualifications). This could include commission, guaranteed and non-guaranteed overtime, some allowances and some bonuses, but excludes payments simply reimbursing expenses. It is unclear whether voluntary overtime should be included.
Other key issues are:
- The reference period. The WTR say holiday pay calculations should be based on a reference period 12 weeks before holiday is taken. In Lock, the Advocate General suggested a 12 month reference period and the CJEU said national courts should decide upon a representative period. Ultimately, tribunals may need to decide this on a case by case basis.
- The payment period. Enhanced holiday pay applies to the four week Directive entitlement, but not the additional 1.6 weeks' WTR holiday. The EAT has suggested that the first four weeks' leave each year should attract the enhanced rate. In practice, many employers may not differentiate.
- Back claims. Many are likely to be unlawful deductions claims which must be brought within three months of the deduction or last in a series of deductions. Initially, there were concerns about claims going back to 1998 (when the WTR came into force). These concerns have been tempered by the Deduction from Wages (Limitation) Regulations 2014 (which impose a two year time limit on most claims for unlawful deductions made on or after 1 July 2015) and by the Bear decision (apparently being appealed) that rights are lost if there is a gap of more than three months between deductions.
The EAT's decision in Lock has not been much of a step forward. Employers should review their approach to holiday pay calculations and identify potential liabilities. Careful consideration should be given to the risks of action/inaction in addressing the issue as some of the cases could be overturned on appeal or be impacted by a future Brexit.
This article was published in New Law Journal in April 2016.