Holiday pay: Supreme Court refuses permission to appeal in Lock v British Gas but the story does not end yet

Written on 1 Mar 2017

Back in October 2016 we reported on the Court of Appeal (CA) decision in Lock v British Gas (see here). It confirmed that the UK’s Working Time Regulations 1998 (WTR) could be interpreted as requiring Mr Lock’s ‘results-based’ commission to be taken into account when calculating holiday pay for the 20 days holiday entitlement emanating from the European Working Time Directive (WTD).

British Gas sought leave to appeal to the Supreme Court. Unison has now announced that permission to appeal has been refused (see here).

Is it “quids in” time for working people?

So will, as Unison comments, “thousands of working people – whose wages include an element of commission – now be quids in“?

Not necessarily and certainly not immediately.

The story does not end quite yet… a second ET hearing to calculate Mr Lock’s holiday pay

Whilst the CA decision that Mr Lock’s results-based commission should be reflected in his holiday pay under the WTR, now legally stands; from a practical perspective, we are still no further forward on how the WTR should be interpreted to achieve this.

The original Employment Tribunal (ET) in the Lock litigation inserted a new sub-section into the WTR, essentially enabling Mr Lock’s holiday pay to be calculated under existing provisions (available to workers on different working arrangements), which provide for holiday pay to be calculated over a 12 week reference period. The CA criticised this new provision on the basis it was “expressed too widely insofar as it refers to all types of commission and not just to contractual “results-based commission” that is the subject of Mr Lock’s case“. It therefore favoured an “appropriate amendment” to the ET’s judgment to “more clearly confine it to the circumstances of his case“. Whilst not expressly attacking the 12 week reference period, the CA did state that it was saying “nothing” about what in any particular case was the appropriate reference period.

In any event, the original ET in the Lock litigation expressly left a number of more practical questions for a second ET to determine (see here), including whether Mr Lock had already been compensated for his holiday via the commission scheme (albeit this in itself may be unlawful). Inevitably, the outcome of this second ET hearing will now be watched with keen interest.

No ‘one size fits all’ approach… yet!

The CA in Lock alluded to each case being assessed on its own circumstances. Commission schemes are, by their nature, specific to the particular business – another worker’s right to commission may well be very different in nature from Mr Lock’s. The critical question in every case will be whether the commission (or indeed other payment made to a worker) is part of their ‘normal remuneration’. Mr Lock’s results-based commission, which represented about 60% of his earnings, and was payable monthly on sales achieved, was held by the Court of Justice of the European Union to be normal remuneration. The next question is then how that should be reflected in holiday pay. But what the various holiday pay claims since 2006, (when the case of Williams & ors v British Airways first found itself in the ET), aptly demonstrate is that there is not, at least yet, any one size fits all approach.

Will Brexit provide a resolution once and for all?

The CA’s decision in Lock, turned on its finding that the “grain or thrust” of the WTR should be interpreted to provide Mr Lock with an entitlement to have his holiday pay calculated by reference to his normal remuneration as required by the European WTD. With Brexit, Unison has raised the prospect that, in the future, this interpretation could be at risk. The same would no doubt be true of the EAT’s decision in Bear Scotland, which looked at the inclusion of guaranteed overtime and other allowances in holiday pay (see here).

The Prime Minister, Theresa May, has however made it abundantly clear on a number of occasions that under her government there will be no erosion of workers’ rights. Most recently, the Brexit white paper, states that:

As we convert the body of EU law into our domestic legislation, we will ensure the continued protection of workers’ rights. This will give certainty and continuity to employees and employers alike, creating stability in which the UK can grow and thrive.

Indeed, Brexit may provide the impetus for the UK’s holiday pay rules in the WTR to be clarified by legislation once and for all. This would bring much welcomed certainty to what has become increasingly murky waters, as employers and workers alike wait for specific decisions on individual pay arrangements from our tribunals and courts.

What now?

Holiday pay remains a live issue and a satisfactory resolution may well still be some way off. What will a second ET in Lock determine are the appropriate mechanics for calculating holiday pay where an employer operates a results-based commission scheme, similar to Mr Lock’s? Will that ET decision be appealed?  Will Brexit provide a catalyst for workers to explore their current EU rights, bringing the prospect of further litigation in respect of differently structured commissioned schemes and bonus schemes?

Practically, the message stays the same. Employers should ensure that they continue to identify any areas of risk in their existing holiday pay calculations under the WTR and plan accordingly. Whilst the CA in Lock considered that the instances where holiday pay under the WTR calculations did not in fact already reflect normal remuneration were limited, given the variety of pay structures and pay rates in place in many businesses, there may well be many more in practice.