The Court of Appeal has this afternoon upheld the judgment of the Employment Appeal Tribunal in Lock v British Gas and dismissed the appeal by British Gas.
This means that the position in relation to holiday pay and contractual ‘results-based commission’ remains the same as it was in March 2015 when the Employment Tribunal gave its decision in Lock (see here for our briefing on the ET decision).
It was hoped that the Court of Appeal’s decision might bring to an end the long running series of holiday pay cases which have repeatedly made the headlines over the past couple of years. While this should be the case in relation to contractual ‘results-based commission’ schemes similar to that which applied to Mr Lock, this may not be the case for employers who operate different results-based bonus/commission arrangements.
By way of reminder, the key questions raised in Lock were as follows:
- Should employers take account of contractual ‘results-based commission’ when calculating holiday pay?
Yes. Lock was referred to the ECJ which, in May 2014, confirmed that where contractual commission is determined by reference to sales achieved employers must take that commission into account when calculating holiday pay.
- Is the method set out in the Working Time Regulations 1998 (WTR) for calculating holiday pay consistent with the ECJ’s decision in Lock and the EU Working Time Directive or should words be added to the WTR to make them consistent?
The Employment Tribunal held that the WTR can be read to conform with the EU Working Time Directive and decided that wording should be implied into the WTR to achieve this. It introduced a new Regulation 16(3)(e) into the WTR, as follows:
“(e) as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of s.221”
British Gas argued before the Court of Appeal that the Employment Tribunal’s interpretation of the WTR in this way was inconsistent with the “grain” of the legislation which, it said, constituted “judicial vandalism”.
The Court of Appeal has confirmed that the Employment Tribunal was correct to hold that the WTR can be interpreted to be consistent with the EU Working Time Directive.
The Court of Appeal has, however, stated that the wording which the Tribunal implied into the WTR (ie the new Regulation 16(3)(e)) should be limited to cases of contractual ‘results-based commission’, such as that in the Lock case, and favours an appropriate amendment to the Tribunal’s judgment to ensure this is the case.
The Court of Appeal further made clear that its judgment was limited to the Lock case, and made no comment as to how a conforming interpretation of the WTR might apply in other cases. It gave two examples which might raise further questions:
- a salaried banker who receives a large results-based bonus once a year – should that bonus be taken account of when calculating holiday pay for a holiday later in the year?
- a worker on a similar commission arrangement to Mr Lock but who only becomes entitled to commission once a particular level of turnover, profit or threshold is reached later in the year, which might mean that no commission is paid for some months of the year – how should the commission element of holiday pay be calculated for that worker?
The Court of Appeal has therefore left it open for employees on different types of contractual results-based bonus/commission arrangements to question how their holiday pay should be calculated and whether it should include commission. It seems the holiday pay case saga may not be over quite yet.
- What reference period should an employer use when calculating holiday pay which includes results-based commission?
The new Regulation 16(3)(e) means that where a worker’s remuneration includes results-based commission, holiday pay should be calculated in the same way as for a worker with normal working hours whose remuneration varies with the amount of work done. This means that a week’s pay will be calculated as the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable in respect of the previous 12 week period.
The Court of Appeal has confirmed that this is the correct approach for commission schemes similar to that which applied to Mr Lock.
- Does this approach apply to all holiday to which the employee is entitled?
The Court of Appeal has confirmed that the requirement to include results-based commission in any holiday pay calculation only applies to Regulation 13 holiday, ie the four weeks’ EU holiday. This is the same approach as that taken by the EAT in Bear Scotland in 2014 in relation to the calculation of holiday pay and overtime (for our briefing on Bear Scotland see here).