Background 

Under Article 7 of the Working Time Directive (2003/88/EC) (WTD), workers must have the right to a minimum of four weeks’ paid annual leave. The ECJ in this case has subsequently held that this means that workers are entitled to receive their ‘normal remuneration’ during periods of annual leave. 

The WTD is implemented in to UK law through the Working Time Regulations (SI 1998/1833) (WTR) which allow for workers to take 5.6 weeks annual leave on a rate of a ‘week’s pay’ in accordance with the Employment Rights Act 1996 (ERA). The ERA sets out how holiday pay should be calculated for a worker who works normal hours (they will receive a week’s pay calculated on their weekly hours) and for a worker who does not work normal hours(who will be paid based on an average weekly remuneration calculated over 12 weeks). 

Facts 

The Claimant was paid a basic wage and top of this he received commission on his sales which formed around 60% of his wage. During a period of annual leave, he was paid his basic wage from previous sales that fell due during the period. However, he suffered a reduced income in the months following his return to work because he had not secured sales, and had therefore not generated commission, while he was on holiday. He brought a claim in the Employment Tribunal in view of this, arguing that his reduced income was a breach of the WTR. 

The Tribunal referred the question to the ECJ who held that under Article 7 of the WTD, contractual commission must be included in statutory holiday pay, as it is part of the worker's normal remuneration. It reasoned that if commission payments were not taken into account, the worker would be placed at a financial disadvantage, which might deter them from taking their holiday, contrary to the WTD's purpose. Following the ECJ’s decision, the case was remitted back to the Tribunal to determine the extent to which the WTR could be read consistently with EU law. Both the Tribunal and the Employment Appeal Tribunal (EAT) found that the ‘week's pay’ provisions of the ERA 1996 should be re-written for the purposes of the WTR 1998 so that commission and similar payments are included in statutory holiday pay. British Gas then appealed the decision to the Court of Appeal 

Decision 

The Court of Appeal unanimously dismissed the appeal and upheld the EAT's decision that the WTR should be interpreted to provide that results-based commission should be included in statutory holiday pay derived from the WTD.

Comments 

The Court of Appeal's decision unfortunately does not progress this long-running legal saga much further. Employers are still left to grapple with the same practical difficulties in calculating the commission element of statutory holiday pay, specifically what is the appropriate reference period in which to calculate statutory holiday? The ECJ left this issue for the domestic courts to determine and as of yet, no guidance in respect of this has been given. We understand that British Gas have sought leave to appeal to the Supreme Court so we will update you in due course if and when we know whether the matter will be progressing further.  British Gas Trading Ltd v Lock and another [2016] EWCA Civ 983