As expected, the EAT in British Gas Trading Ltd v Lock has upheld the earlier tribunal decision that the holiday pay of employees who are paid commission will have to reflect their average earnings, including an element for that commission, rather than just basic pay.  The EAT had to follow its earlier decision in Bear Scotland v Fulton unless it was manifestly wrong or there were exceptional circumstances and those exceptions did not apply here.

The claimant was a gas sales consultant whose pay was made up of basic salary plus commission on completed sales.  The commission, paid some weeks after the sale, typically represented over 60% of the employee's normal monthly earnings.

During holiday periods the claimant was paid in the normal way: his basic salary plus any commission due from sales completed previously.  He took three weeks' annual leave at the end of 2011; during this time he did not earn any commission as he was not making any sales and, as a result, his salary in the months following was reduced.  He made an unpaid holiday pay claim to reflect these later losses of commission.

The case went to the European Court which held that holiday pay cannot be limited to basic salary where remuneration is made up of both salary and commission calculated by reference to sales achieved.  The case was sent back to the employment tribunal to establish whether the Working Time Regulations could be interpreted the same way.  In the meantime, the EAT in Bear Scotland Ltd v Fulton confirmed that the Regulations must be read to include in holiday pay calculations any non-guaranteed overtime normally worked by the employee. So last year the tribunal in Lock decided that, in the same way, employees whose remuneration includes commission or similar payments must have their holiday pay calculated by reference to their average hourly rate of remuneration, including commission. 

This latest Lock decision was only about whether the EAT had to follow the Bear Scotland ruling. The detailed legal issues will be revisited if British Gas appeals the decision to the Court of Appeal. In the meantime, other uncertainties in this area remain, including:

  • Does voluntary overtime have to be treated in the same way? The Northern Ireland Court of Appeal case of Patterson v Castlereagh Borough Council last year suggests it may do.
  • What is the reference period for calculating average commission? Under the legislation, it should be the 12 weeks before the period of holiday taken. However, the Tribunal in Lock said that the reference period would be decided at a later date.

In theory, Lock applies to the basic four week annual leave entitlement only, not the extra eight days of leave under the Working Time Regulations, but it is clearly difficult to pay basic and additional statutory leave on different basis.