Results-based commission should be included in the calculation of holiday pay, the Employment Appeal Tribunal (EAT) has confirmed in the eagerly anticipated appeal decision in Lock v British Gas.
Back in May 2014, when the European Court of Justice considered the case of Lock v British Gas, it stated that "the purpose of providing payment for [annual] leave is to put the worker, during such leave, in a position which is, as regards his salary comparable to periods of work".
As a result, it held that the EU's Working Time Directive requires results-based commission to be taken into account when calculating holiday pay for the four weeks of paid annual leave provided under the Directive. This is commission based not on the amount of work done but the success of that work.
Whilst this decision was binding on the UK, the logical next question was whether UK legislation could be interpreted in a way that conforms to the requirements of the Directive. It was for the employment tribunal to answer that question.
In 2015, the case returned to the employment tribunal (read our briefing on the decision here). It held that it was possible to interpret the UK Working Time Regulations 1998 in conformity with the requirements of EU law and that commission and similar payments should be included in the calculation of holiday pay. This only applied to the four weeks of leave provided for by the Working Time Directive.
British Gas appealed, bringing us to the present decision of the EAT.
The EAT confirmed that the UK Working Time Regulations can be interpreted in line with EU law to allow results-based commission to be included in the four weeks of paid holiday derived from the Directive. It followed its previous decision in Bear Scotland v Fulton, which held that non-guaranteed overtime should be included in holiday pay (see our previous briefing on the case here).
As a result, the British Gas appeal was dismissed.
The decision confirms that results-based commission should be included in the calculation of holiday pay for the four weeks of paid holiday provided by the Working Time Directive.
There is still a question mark over the correct reference period to use when calculating holiday pay that takes into account elements such as commission in addition to basic salary. The implication from the employment tribunal decision in Lock was that 12 weeks may be the correct period, however, the Advocate General at the ECJ stage suggested 12 months and the ECJ referred to a "representative period".
As a result of the continuing uncertainty, employers trying to navigate solutions to holiday pay should seek advice on the tactical approach to quantifying and managing employment risks to avoid complex and time consuming litigation.
There are 978 claims against British Gas and many thousands of similar claims against other employers that have been stayed pending the outcome of the Lock appeal.
It is understood that British Gas is seeking leave to appeal to the Court of Appeal so this may not be the end of the story. Indeed, the parting words of the EAT judgment in Lock were that if Bear Scotland was wrongly decided then it must be for the Court of Appeal to say so, and not for the EAT. We must therefore wait and see whether the saga continues.
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