Holiday pay update for employers on the Lock commission case

Written on 5 May 2015

It has been reported today by lawyers representing the employer in the Lock case on holiday pay and commission that the recent Employment Tribunal (“ET”) decision in that case (see here) will be appealed.  It is clear that Europe requires that 4 weeks’ of the statutory holiday provided for in our Working Time Regulations (“WTR”) must be paid at a rate reflecting a worker’s normal remuneration, including commission payments such as those received by Mr Lock.  Whilst the ET in the Lock case had held that our WTR could be interpreted to reflect this, the appeal against that finding will now mean that it will be for the Employment Appeal Tribunal (“EAT”) to determine whether that is so.

With the UK General Election this Thursday, does this further continued uncertainty now leave the door open for a new Government to tackle this issue head on with legislative reform? Unfortunately, the answer to that question is also likely to be some way off as well with none of the political parties expressly committing to tackle this issue in their pre-election manifestos.

ET ruled in Lock that our UK laws on calculating holiday pay can be interpreted to include commission payments

The express wording of the WTR provide 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”) requires a worker to receive his or her normal remuneration during the minimum four weeks holiday required by Europe.

In light of the ECJ ruling, the ET held in Mr Lock’s case in March that the WTR could be read to be consistent with the requirements of the Directive. To achieve this, a new regulation should be read into the WTR which essentially required Mr Lock’s holiday pay to be calculated as if he fell within the category of workers whose weekly pay varied by the amount done and which calculation already takes into account any additional payment made to a worker reflecting the amount of work done in a specific time frame (along with basic salary).

A subsequent ET hearing would then determine any holiday pay that Mr Lock should in fact have been entitled to taking into consideration the facts of his case, including the terms of the commission scheme operated by his employer. This hearing will now be on hold pending the appeal of the above ET decision to the EAT.

ET finding to be appealed

The lawyers for the employer in the Lock case have now issued a statement that the above ET decision is being appealed on essentially two grounds:

  • It was not appropriate for the earlier EAT ruling in Bear Scotland that the WTR could be read to include non-guaranteed overtime payments in holiday pay (see here) to have any bearing on this commission case stating that “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.

The rule established by the EAT in Bear Scotland that more than a three month gap between underpayments will break the chain of unlawful deductions which can be claimed is not being appealed.

Next steps

This appeal is potentially helpful to employers challenging whether the courts are right to interpret our existing WTR to meet European requirements. However, if the EAT does decide that the ET in Lock was wrong, this will potentially leave employers with two conflicting EAT decisions, albeit one dealing with non-guaranteed overtime and the other with commission, pending a further appeal to the Court of Appeal or a new Government stepping in with legislative reform. What is clear is that any resolution or clarity on the calculation of holiday pay for UK employers is still a long way off.

Please do not hesitate to contact your usual OC Contact for further advice on holiday pay.