Employment Appeal Tribunal confirms that commission is included in holiday pay

Posted 23/02/2016 By: Jessica Piper

The Employment Appeal Tribunal (“EAT”) has set down its judgment in the appeal of Lock v British Gas [previously reported on here: https://www.ashtonslegal.co.uk/insights/legal-news/employment-appeal-tribunal-confirms-that-commission-is-included-in-holiday-pay/], dismissing the appeal of British Gas and upholding the Employment Tribunal’s (“ET”) decision.

Background

Mr Lock was an energy trader with normal working hours whose earnings comprised of basic pay, plus commission on sales which represented around 60% of his overall pay. While Mr Lock received payments on holiday in respect of previous commission earnt, his earnings dropped upon return from holiday as he had not been able to generate sales whilst on holiday.

In the ET, a reference was made to the Court of Justice of the European Union (“CJEU”) which held that the Working Time Directive (“Directive”) required results-based commission to be taken into account when calculating holiday pay. As a result, the ET held that it was possible to interpret the Working Time Regulations 1998 (“WTR”) in line with this, albeit that the ruling appeared to apply to the 4 weeks’ holiday provided for under the Directive, rather than the enhanced 5.6 weeks’ holiday under the WTR.

EAT decision

The question before the EAT was whether it correct that our legislation could be interpreted in this way, and reference was made to the recently decided case of Bear Scotland v Fulton & Ors.Bear Scotland decided that overtime should be included in holiday pay calculations, for the 4 weeks’ holiday provided for under the Directive, where the overtime is guaranteed or the overtime is ‘non guaranteed’ and worked for a sufficient period of time in order for it to be normal. Guaranteed overtime is overtime an employer must offer to an employee and which the employer must pay for even when it has no overtime to offer. Non-guaranteed overtime is overtime that an employer is not obliged to provide but which, if the employer offers it, the employee is contractually obliged to perform.The law is uncertain about whether voluntary overtime should also be included in holiday pay calculations. At the EAT in Lock v British Gas, Singh J confirmed that the intention of Parliament when enacting the WTR was to comply with the Directive, the central feature of which is that “the entitlement of every worker to paid annual leave is a particularly important principle of EU social law”.

While Singh J confirmed that the EAT is not bound by previous decisions, they are persuasive, and as a result, Singh J saw no reason to depart from the decision in Bear Scotland.

Current position

Despite this ruling confirming that results-based commission should be included in holiday pay, there are questions that remain outstanding, including:

1. What reference period should be used? While 12 weeks is often suggested as a suitable reference period, there has been no definitive guidance on this point.
2. What kind of commission should be included (i.e. results-based only, or all commission)?
3. Under the WTR, should these decisions extend to all holiday pay, or just the 4 weeks’ of Directive holiday?

Should British Gas be successful in gaining permission to appeal this decision, it will be hoped that there will be definitive guidance from the Court of Appeal. However, any such appeal is not likely to be heard until next year, and there are numerous similar claims presently stayed in the ET awaiting a decision on this point. It is likely that the employers in these cases will ask for the stays to remain until any decision from the Court of Appeal is made.

In the meantime, employers will need to decide whether to follow the recent ruling or whether to chance that the law may change on appeal. It is considered that most employers will now operate on the basis that results-based commission forms part of holiday pay.

If you have any questions regarding how your business should deal with holiday pay in the light of this ruling, please do not hesitate to contact a member of the Ashtons Legal Employment Team.