Employment Appeal Tribunal rules that commission forms part of holiday pay

Written on 22 Feb 2016

Unison has reported that the Employment Appeal Tribunal (EAT) has ruled that UK laws on calculating holiday pay must be interpreted to include commission payments (see here).

This is the latest decision in the long-running case of Mr Lock, a British Gas salesman whose remuneration package included a basic salary plus commission, based on the number and type of contracts he persuaded customers to enter into. When Mr Lock took periods of annual leave he would be paid basic pay only in respect of that leave.  No payment was made in respect of the commission he would have made had he not been on leave.  This was significantly less than his normal pay and a disincentive to take annual leave.

The express wording of the Working Time Regulations (WTR) provides that a worker, such as Mr Lock, who works “normal working hours”, should receive holiday pay calculated on basic salary only. Any commission paid for success that the he or she might have earned had they in fact been working, is not included.

However, the European Court of Justice (ECJ) has previously held that Mr Lock’s holiday pay should reflect this commission element as the European Working Time Directive (the Directive), which the WTR implements in the UK, requires a worker to receive his or her normal remuneration during the minimum four weeks holiday required by the Directive. In line with the ECJ decision, an Employment Tribunal ruled in March 2015 (see here) that the WTR should be read to be consistent with the requirements of the Directive and that a new regulation should be read into the WTR enabling individuals, such as Mr Lock, who work normal working hours to have their holiday pay calculated under different rules which would allow commission to be accounted for.

British Gas appealed the UK Employment Tribunal’s decision on the following grounds:

  • The earlier EAT ruling in Bear Scotland & Others v Fulton & Others [2015] that the WTR could be read to include non-guaranteed overtime payments in holiday pay (see here) should not have any bearing on this commission case as “commission and non-guaranteed overtime are dealt with under different provisions which use different language”.
  • In any event, the EAT decision in Bear Scotland that the WTR could be read to give effect to the Directive was wrong.

As indicated above, the EAT has now reportedly ruled in favour of Mr Lock, finding that UK laws on calculating holiday pay can be interpreted in a way which conforms to the requirements of the Directive so that it reflects normal remuneration, and in doing so upheld the EAT decision on non-guaranteed overtime pay in Bear Scotland.

This decision is unlikely to come as a surprise, as it has been clear for some time that Europe requires that four weeks of the statutory holiday provided for in the WTR must be paid at a rate reflecting a worker’s normal remuneration, including commission payments such as those received by Mr Lock. Today’s ruling by the EAT again confirms that this is so, paving the way for employees whose pay is part commission-based to be paid the same amount for periods of annual leave as for time in the office.

A subsequent Employment Tribunal hearing will now determine any holiday pay that Mr Lock should have been entitled to, taking into consideration the facts of his case, including the terms of the commission scheme operated by his employer.  This is the decision more eagerly awaited by employers, struggling to understand when and how commission must form part of their employees’ holiday pay calculations.