The eagerly-awaited decision of the Employment Appeal Tribunal in Lock v British Gas Trading Limited has been published, confirming that commission should be included in holiday pay. Those of us who were hopeful that the EAT may provide guidance on the variety of unresolved issues relating to the calculation of holiday pay will, however, need to wait a little while longer.
As many will be aware, Mr Lock was employed by British Gas as a salesman. As well as his basic salary, he was entitled to receive commission based on sales. Commission was paid in arrears and amounted to approximately 60% of Mr Lock’s total earnings. Mr Lock claimed that, as he could not earn commission whilst on holiday, he would lose income if he took annual leave. He therefore argued that commission should be included in his holiday pay. The case was referred to the Court of Justice of the European Union (CJEU), which held that commission payments should indeed be included in holiday pay calculations.
The key question for the Employment Tribunal was therefore whether the Working Time Regulations 1998 (WTR) could be interpreted so as to take into account the CJEU’s decision that holiday pay should include commission. The Tribunal held that the WTR could be interpreted to take the CJEU decision into account, and added wording to the WTR to this effect.
British Gas appealed, arguing that the Tribunal was wrong to conclude that the WTR could be interpreted in accordance with the CJEU decision. In particular, British Gas argued that the decision inBear Scotland v Fulton (which was considered by the Tribunal) was (i) distinguishable, as it related to overtime payments and not commission, and (ii) was in any event incorrectly decided and not binding upon the EAT. The EAT rejected these arguments and dismissed the appeal on these grounds alone. In fact, the EAT declined to comment on the substantive law, saying that this was an issue for the Court of Appeal.
The EAT did not provide any guidance on the question of commission and holiday pay beyond that contained in the original Tribunal decision. Indeed, the EAT expressly stated that, as the CJEU decision is binding on the UK, the narrow legal question of whether the WTR could be interpreted in accordance with the CJEU decision was the only issue that it required to determine.
On this basis, the EAT decision still leaves us with a number of unanswered questions – most notably what the appropriate reference period should be for calculating the holiday pay of workers who earn commission. It is likely that a further Tribunal hearing will be required to determine the compensation due to Mr Lock by British Gas, which may provide some guidance on the appropriate length of reference period. Of course, any guidance from a Tribunal will not be binding - but may at least provide a starting point. Another factor to consider is whether British Gas will seek leave to appeal, which would enable the Court of Appeal to consider the substantive issues in this case.
The scale of the issue meantime remains significant, with thousands of cases either on hold pending further guidance from the appellate courts (Scotland) or still at early stages with preliminary hearings having taken place to establish the type of variable pay and the total shortfall in pay sought (England). It remains to be seen what approach the Tribunal service will now take in relation to these cases.
Whilst it is now clear that UK law requires commission to be included in holiday pay; our view is that there is still insufficient clarity, and any changes in approach within companies will have to be planned with this in mind - including the potential to have to revisit calculations. Quite clearly, further guidance in relation to reference periods cannot come soon enough.