Lock v British Gas – Holiday pay must reflect commission rules EAT

February 29, 2016

The Employment Appeal Tribunal (“EAT”) found in favour of Mr Lock, ruling that a worker’s commission payments must be included in the calculation of his or her holiday pay. The EAT interpreted domestic UK law in line with EU law, relying on the judgement of the European Court of Justice.

Mr Lock was employed by British Gas as a salesman. His income consisted of a basic salary plus commission based on the number and type of contracts acquired from customers. When on holiday Mr Lock received only basic salary from British Gas, amounting to notably less than his normal income.

Mr Lock brought a claim to recover a sum of holiday pay inclusive of that which he would normally receive on a commission inclusive basis.

The Law

Domestic legislation is contained in the Working Time Regulations (NI) 1998 (‘WTR’) and the Employment Rights (NI) Order 1996. European Union law is contained in Council Directive 2003/88/EC, the Working Time Directive which provides that workers must have the right to at least four weeks’ paid annual leave. However, it does not specify how holiday pay should be calculated. This is in contrast to the WTR which specify that holiday pay, for a worker who works “normal working hours”, is calculated on basic salary only.

Despite the wording of the WTR the precedent set by the EAT in the case of Bear Scotland confirms that the WTR should conform with the EUD in calculating holiday pay as ‘normal remuneration’ which includes non-guaranteed overtime and is therefore inclusive of commission.

In following this decision the ET in Lock adopted this approach and found in favour of Mr Lock.

The Appeal

In appealing the decision of the ET British Gas submitted that Bear Scotland was an incorrect ruling and one which was unrelated to commission as this differed from non-guaranteed overtime. The EAT dismissed British Gas’ appeal finding that the ET was correct in applying the approach adopted from Bear Scotland, as there is no differing principle to be applied between non-guaranteed overtime and commission as far as holiday pay is concerned.

What does this mean for employers?

The EAT’s decision leaves little doubt that commission must be factored into holiday pay. In light of this employers should ensure that their current holiday pay allowances are in line with expectations for those commission based workers. Failing to include such payments may lead to a flood of claims for unlawful deductions from wages.

While GB has recently introduced the Deduction from Wages (Limitation) Regulations 2014 which impose a two-year limit on most claims for backdated unlawful deductions from wages since 1 July 2015, corresponding Regulations have yet to be introduced in NI.

What the EAT has failed to clarify is exactly how commission or non-guaranteed overtime should be factored into the calculation of holiday pay. Such guidance is expected to come from the separate ET hearing in which a value of holiday pay, inclusive of commission, for Mr Lock is to be determined.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Employment Team at Cleaver Fulton Rankin for further advice or information.

Michael Black, Director, Employment Team, Cleaver Fulton Rankin, Solicitors.