The Court of Appeal confirmed in this long running case that
results-based commission payments must be included in the
calculation of holiday pay for the basic four weeks’ annual
leave provided by the Working Time Regulations (WTR). The Court was
however unwilling to extend the principle to situations other than
those involving contractual, results-based commission.
Mr Lock was employed as an energy trader. His commission on
sales was worth about 60 per cent of his basic pay. When he went on
holiday he received basic pay and any commission earned before he
went away. However after his holiday he received less income
because he had not been able to earn commission while on
He brought a claim in the Leicester Employment Tribunal. He
argued that, since the European Court had held in previous cases
that holiday pay should reflect 'normal remuneration' and
not just basic pay, his pay should be enhanced to reflect the
commission that he would otherwise have earned during annual leave.
The tribunal referred the case to the European Court which held
that commission payments must be taken into account when
calculating holiday pay. The case then returned to the tribunal,
which had to decide whether the WTR could be interpreted so as to
give effect to the underlying EU law.
The tribunal held that it was possible to read the WTR in that
way and its decision was upheld by the Employment Appeal Tribunal.
British Gas appealed to the Court of Appeal, arguing that it had
not been open to the tribunal to amend the WTR by interpreting it
in accordance with European law.
The Court of Appeal had to decide what the underlying purposes
of the WTR had been and came to the view that its intention was to
implement the European Directive, even if aspects of it had not
been completely clear at the time, such as how pay was to be
calculated. It was now clear that this required the worker’s
‘normal remuneration’ to be taken into account. The
Court could and should interpret the WTR accordingly, so as to
include Mr Lock's commission payments in the calculation and
could imply words into the WTR to make that clear. British Gas
therefore lost its appeal.
The Court would not be drawn on how this principle might apply
to other kinds of worker, such as a banker who receives a
results-based annual bonus, or the worker who receives commission
only when a particular level of turnover or profit is achieved. It
did however make changes to the wording the employment tribunal had
read into the WTR and limited it to contractual results-based
commission, favouring a form of wording that more clearly confined
the tribunal’s judgment to the circumstances of Mr Lock's
Subject to any appeal to the Supreme Court, the Court of Appeal
judgment therefore clarifies the position only with regard to a
specific type of commission – that is, contractual,
results-based commission. Employees who earn other kinds of
commission will therefore have to persuade their employers that
their situation is really no different from that of Mr Lock or will
have to bring proceedings of their own. This means continued
uncertainty for employers over this long running problem, but the
limit on back pay claims to two years does at least mean that
employers can assess their potential exposure and make provision
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The Court of Appeal has held that where a contract of employment lacks a provision for when notice of termination takes effect, it is effective from when the employee personally takes delivery of the letter containing notice.
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