Lock v British Gas – An Update and Reminder on Holiday Pay
The eagerly anticipated Court of Appeal's (CoA) judgment in the case of Lock v British Gas Trading was recently delivered and, rather unsurprisingly, the CoA confirmed that commission should be included in holiday pay calculations.
A reminder of the facts
Mr Lock was employed by British Gas Trading Ltd. His pay included a basic salary plus commission determined with reference to sales performance. However Mr Lock’s holiday pay included basic salary and not commission, despite the fact that around 60% of his total remuneration came from his commission. Mr Lock brought a claim in the Employment Tribunal (ET) alleging breach of the Working Time Regulations 1998. The ET subsequently referred the matter to the European Court of Justice (ECJ) for determination.
The ECJ held that the Working Time Directive does require contractual commission to be included in statutory holiday pay, because this commission is part of a worker’s normal remuneration. To decide otherwise would deter the worker from taking holiday by placing them at a financial disadvantage during periods of annual leave, which is contrary to the rationale behind the Directive.
Following this ruling, the ET interpreted our domestic law, the Employment Rights Act 1996, in accordance with the ECJ ruling so that certain payments falling outside basic salary such as commission would be included in statutory holiday pay. British Gas appealed the decision and the Employment Appeal Tribunal (EAT) dismissed this appeal, again reiterating the point that our domestic legislation can and should be interpreted in a way that conforms to European law on holiday pay.
British Gas subsequently appealed to the CoA, who dismissed the appeal, again upholding that commission payments should be included in holiday pay.
Despite the rather foreseeable outcome of this appeal, the CoA’s ruling is helpful in clarifying that where there are commission payments like in Lock v British Gas, being results based commission payments, holiday pay should be calculated using the 12 week average reference period. Employers should therefore amend their holiday pay calculations to reflect this 12 week reference period, if they have not done so already.
Outside of this, the CoA refused to consider how reference periods should be calculated or indeed whether different reference periods will be used in cases where commission is perhaps paid less regularly, or at different times of the year. The judgment does consider that there may be circumstances where other reference periods are appropriate, but this remains uncertain at present. There is also a grey area around other payments such as voluntary overtime and bonuses when calculating holiday pay, and further clarity on these points would be welcomed.
But what about Brexit?
First and foremost, all of the above remains applicable at the time of writing. Until such time that the UK formally exits the EU, UK legislation must be interpreted in accordance with ECJ decisions.
However, thinking more long-term, the Government has announced its intention to end the ECJ’s jurisdiction in the UK and will introduce a ‘Great Repeal Bill’. One effect of this will be that once the UK exits the EU, UK legislation will no longer have to be interpreted in accordance with EU law. This will make decisions such as Lock v British Gas, which are decided wholly in accordance with the ECJ’s rulings, vulnerable to legal challenge as and when similar cases arise.
If you require further advice on how you should be calculating holiday pay for your recruitment consultants, or on behalf of any of your clients, contact Gurpreet Sanghera who would be happy to assist.