Holiday Pay and Commission - British Gas v Lock

10 October 2016

10 October 2016

The Court of Appeal has handed down its decision in British Gas v Lock.  It is an important case on the calculation of holiday pay, not that it says anything new.

Mr Lock was a salesman on a basic salary with variable commission paid in arrears. Mr Lock's commission depended not on the time worked, but the outcome of that work, i.e. sales achieved. Mr Lock could not earn commission whilst on leave, and therefore would lose income by taking it. He brought a claim for his 'lost' holiday pay after taking leave in December 2011 to January 2012.

In 2014, the European Court of Justice (ECJ) held that, when calculating holiday pay, Member States must ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work.  But the ECJ left the mechanics of working out 'how much should that be?' to the member states.

The decision is very technical, dull, and says nothing new.  The issue for the Court of Appeal was whether the UK Working Time Regulations 1998 can be interpreted as including holiday pay in respect of commission, as the wording of the Employment Rights Act 1996 suggests not.  And that's right - the natural wording of the legislation says it can't.

But the Court of Appeal (as with the EAT and employment tribunal before it) got around that problem by adding a new subsection to the Working Time Regulations 1998, under the guise of statutory interpretation. There's no doubt it achieves what the ECJ wants. But it leaves us groaning under the weight of the intellectual sophistry needed to get there.

Conclusion - when calculating holiday pay, workers are entitled to be paid an amount which reflects the commission they would have earned if not on holiday. Which we all knew two years ago.

And what about the other question, of 'how do we actually calculate it?' Well, the Court decided not to answer that - at paragraphs 114 and 115 it refers to the questions arising from calculating how to factor in bonuses and commissions, and says "nothing in this judgment is intended to answer them."

With thanks to Daniel Barnett’s employment law bulletin which provided the details of this case.

CIPP comment

Yet another appeal and employers are still left with the same uncertainty as to the reference period to be used to calculate holiday pay. The CJEU did say in the Bear Scotland case that it is for the national court to assess the link between the various components which make up the total remuneration of the worker and that assessment must be carried out on the basis of an average over a reference period which is judged to be representative, which leaves it somewhat open to interpretation.

However there is clarity on the horizon – the Department for Business, Energy & Industrial Strategy (BEIS) has advised that once the outcome of further cases have been heard they will be in a position to develop some long awaited guidance.  And when this happens, hopefully later this year, the CIPP policy team and some CIPP members are going to be helping BEIS with the guidance. We will keep you updated.