March 30, 2016

Holiday pay should include commission

Employers will now have to pay commission as part of holiday pay, the Employment Appeal Tribunal (EAT) has confirmed.

Thousands of workers who rely on commission will be able to claim more holiday pay thanks to this landmark ruling.

After a four-year legal battle, one man has managed to secure more holiday pay for thousands of workers. The Employment Appeal Tribunal ruled in favour of a salesman who received only his basic pay while on holiday, despite making most of his money from commission.

The recent EAT decision will influence the outcome of thousands of other pending holiday cases, and will force employers to review their current holiday pay allowances in relation to elements such as overtime and commission.

The story so far…

Here’s a quick summary of the long running case of Lock v British Gas Trading Ltd, which was first brought to tribunal in April 2012:

  • Mr Lock, a British Gas salesperson, had a basic salary plus commission
  • When he took annual leave, he would receive basic pay, which was considerably less than his usual salary
  • Lock argued that this discouraged him from taking annual leave and lodged a claim with an employment tribunal, which referred the case to the European Court of Justice (ECJ)
  • The ECJ concluded that because his commission was directly linked to the work he carried out, it must be taken into account when calculating holiday pay
  • The case was then referred back to the UK tribunal to apply its ruling to UK law
  • The subsequent tribunal decision, last March, found in favour of Mr Lock, and applied an extra clause to the Working Time Regulations 1998.

The most recent decision…

The EAT dismissed the appeal and the key findings were:

  • Commission payments should be included in the calculation of holiday pay in respect of the four weeks’ annual leave under regulation 13
  • It is permissible – and indeed necessary – to imply words into the Working Time Regulations 1998 to comply with EU law.
  • Parliament’s intention must have been to comply with EU law. Domestic legislation can therefore be interpreted in a way which conforms to EU law on holiday pay;
  • The EAT followed the decision in Bear Scotland (which concerned guaranteed overtime). If Bear Scotland was wrongly decided then the Court of Appeal must decide that, not the EAT.

Now and the future…

It now appears that there is little doubt that commission and overtime, both guaranteed and non-guaranteed (where the worker is obliged to work overtime if required), will have to be included in holiday pay.

In some cases, this could lead to additional expense for employers who will need to be aware that a failure to include such payments may leave themselves open to a claim or where applicable a succession of unlawful deductions from wages claims.

What should you pay?

Unhelpfully, what the EAT did not determine (or indeed the original Tribunal) was the reference period employers must use to calculate holiday pay.   The ECJ said this was a matter for national courts to decide by taking an average over a period they considered to be representative.

Therefore the issue of how such payments should be calculated remains uncertain.

It is likely that where payment reference is in dispute, an employment tribunal may approach the issue on a case-by case basis.

Should you need any further advice on this topic, please do not hesitate to contact us.

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About the author

Andrew Weir

About the author

Andrew Weir

Andrew has a wealth of experience in advising and representing clients of all shapes and sizes in a range of Employment Law topics from unfair dismissal through to all forms of discrimination and the complexities of TUPE. Andrew heads up our Advice Line and Advocacy teams who provide Employment Law advice to our clients 24 hours a day, 365 days a year and support our clients in presenting defences at Employment Tribunals throughout the UK & Ireland.

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