News Updates

Commission or similar payments must be included in holiday pay

Thursday 3rd March 2016

The EAT has recently issued its decision in Lock v British Gas Trading Ltd. You may recall from the widely published ET judgment that Mr Lock was a salesman for British Gas. Although he received a basic salary, much of his remuneration was commission driven, dependent on the sales he made. When Mr Lock took his holiday entitlement he received his basic salary and any commission previously earned but payable at that time. He was not able to earn commission while on annual leave and therefore his remuneration decreased. Mr Lock argued that this was contrary to EU law and that commission should be included in the calculation of holiday pay.

A referral was made to the ECJ, which determined that the Working Time Directive requires an employer to take account of results based commission when calculating holiday pay to ensure that the normal level of remuneration is maintained for the duration of the leave period. Following this ECJ decision, the ET considered whether it was possible to read the UK’s Working Time Regulations in a way which makes them compatible with the EU Directive.

The ET, following the decision of the EAT in Bear Scotland v Fulton (non-guaranteed overtime included in holiday pay click here), held that it was possible to do so and that the result was any “commission or similar payment”, which forms part of normal remuneration, must be included in the calculation of holiday pay. Mr Lock therefore had suffered an unlawful deduction from his wages.

British Gas appealed, arguing that the interpretation of domestic legislation in Bear Scotland was distinguishable.   The EAT disagreed. The obligation to interpret domestic legislation in a manner consistent with EU law is broad and far-reaching. The EAT held that it is therefore permissible to imply words into the WTR, particularly so given it was the intention of parliament, when implementing the WTR, to comply with the EU directive.

As a result, any “commission or similar payment” which forms part of normal remuneration, must be included in the calculation of holiday pay. Unfortunately, the calculation of such commission has not yet been addressed. It should also be noted that this decision only applies to the 4 weeks of leave mandated by EU law and not to the additional UK entitlement of 1.6 weeks. BG is seeking permission to appeal, so there may be further developments.

All information in this update is intended for general guidance only and is not intended to be comprehensive, or to provide legal advice.