UK: Locking Commission Into Holiday Pay EAT Cnfirms Psition After A Trip To The European Court Of Justice

The Employment Appeal Tribunal (EAT) has announced the appeal decision in the case of Lock v British Gas. The decision confirms, again, that commission should be included in the calculation of holiday pay. This follows an earlier referral of the case to the European Court of Justice (ECJ) for a preliminary ruling due to an incomptibility between UK domestic law and EU law.

The facts

Mr Lock worked as a sales representative for British Gas. He was paid a basic salary and also a results-based commission. He took issue with the fact that he only received basic pay during annual leave.

In 2012, Mr Lock made a claim to the Leicester employment tribunal alleging that he had suffered an unlawful deduction from wages in respect of a period of annual leave. Basing his argument on the ECJ decision of British Airways plc v Williams (which concerned the issue of what is considered "normal remuneration" for the purposes of holiday pay under European working time law), he argued that his holiday pay should reflect the income that a worker would usually receive had he been at work, which would include commission.

When the tribunal referred the case to the ECJ on the question of incompatibility between UK domestic law and EU law, the ECJ held that commission payments should be taken into account when calculating holiday pay under the European Working Time Directive.

Thereafter, the case returned to the Employment Tribunal, which held that results-based commission should be included when calculating holiday pay for Working Time Directive purposes* and that it was possible to read words into the Working Time Regulations to give effect to this.

British Gas appealed this decision to the EAT.

*This is twenty days of annual leave, as opposed to any other supplementary annual leave under the UK Working Time Regulations 1998 or the employment contract.

The Appeal

Yesterday, the EAT dismissed a further appeal and upheld the Employment Tribunal's decision that it is possible to read words into the WTR to resolve the incompatibility between domestic law and EU law. The EAT also said it was the intention of Parliament to comply with EU law. Following the case of Fulton v Bear Scotland Ltd (which concerned the issue of guaranteed overtime and also read words into WTR to resolve the incompatibility point), the EAT Judge confirmed that he saw no good reason to depart from Langstaff J's earlier decision in this case.

Although the EAT is not bound by its own previous decisions, they are persuasive and should only be departed from if they are manifestly wrong; or in other exceptional circumstances. The EAT confirmed that neither of these two exceptions applied in this case to justify the EAT's refusal to follow the decision in Bear.

Next steps for employers

This decision may still be subject to further appeal, although that remains to be seen. Employers should consider their methods of calculating holiday pay in light of this decision. Where employees are paid results based commission as well as a basic salary, employers should consider whether it should be taken into account when calculating an employee's holiday pay under the Working Time Directive leave.

Where claims have already been raised by employees (which may be currently sisted), employers should seek advice now about how to manage claims and how to mitigate against the risks of future litigation.

It appears that the EU principles on "European" holiday pay may be here to stay. Commission has been Lock-ed in again; watch this space to find out whether employers will also have to Bear further costs...