Holiday pay re-visited – the break’s over

Thomas Twitchett

On Tuesday and Wednesday this week, the matter of holiday pay and commission was re-visited once again in the long-running matter of Lock v British Gas, this time by the Employment Appeal Tribunal. British Gas is currently appealing the decision of Judge Ahmed in March earlier this year that the holiday pay provisions of the Working Time Regulations 1998 can be read consistently with EU law and, in particular, the EU requirement that holiday pay should include commission.

Holiday pay recap

The case concerns Mr Lock, a former sales consultant for British Gas. His pay consisted of both basic salary and regular sales commission. Mr Lock’s earnings in terms of commission greatly outweighed his basic salary and constituted approximately 60% of his total pay. During periods of holiday leave, however, Mr Lock was unable to earn any of this commission and so, when British Gas paid Mr Lock in respect of that period of holiday, Mr Lock only received his basic salary. No adjustment was made to Mr Lock’s holiday pay to factor in his otherwise regular commission. Mr Lock brought a claim against British Gas arguing that he had suffered an unlawful deduction of wages under the Working Time Regulations.

The matter was referred to the Court of Justice of the European Union which agreed with Mr Lock and said that, as a matter of EU law, Mr Lock’s holiday pay should have included an element for his regular commission. The Court confirmed that for the duration of annual leave:

remuneration must be maintainedworkers must receive their normal remuneration for that period of rest…a total amount comparable to that earned during periods of work

The question which Judge Ahmed faced in March earlier this year was whether the wording of the Working Time Regulations could be read consistently with the Court of Justice’s decision. Judge Ahmed decided, bearing in mind the purpose of the Working Time Regulations and drawing parallels with a similar case concerning holiday pay and overtime, that the Working Time Regulations could be read in line with the Court of Justice’s decision provided that certain additional wording was ‘read into’ the regulations. The effect of Judge Ahmed’s decision, as it presently stands, is to confirm that under English law employers must factor in entitlements to commission when calculating a worker’s holiday pay

The outcome of British Gas’s present appeal is unlikely to be known before early next year. However, when it arrives, it will hopefully provide clarity for employers and employees alike in an area of new and expanding law. It would be helpful for the Employment Appeal Tribunal to not only confirm whether or not an employer is under an obligation to include commission in holiday pay, but if so, how to go about actually calculating it, which is still up for debate. It may nevertheless be prudent for employers to note, as a starting point, the Court of Justice’s simple formula that workers should receive, in terms of holiday pay, a total amount comparable to that earned during periods of work.


Comments published on Employment Talk do not necessarily reflect the views of Allen & Overy.

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