Our thoughts on the world of employment law - and beyond.

Lock v British Gas Trading Limited: Commission to be included in holiday pay calculations

Following the CJEU’s decision last year in Lock v British Gas Trading Ltd, the employment world has been waiting with bated breath for long awaited clarity on the interplay of different commission schemes with holiday pay. At Farrers we have closely been following the issue and the ramifications of the decisions made to date (set out in Rachel’s and David’s blog posts).

This week, Leicester Employment Tribunal has held that the Working Time Regulations 1998 (“WTR”) should be interpreted so as to include commission payments in holiday pay calculations in respect of the four weeks’ annual leave mandated by the EU Working Time Directive (“WTD”).

By way of brief reminder, Mr Lock works as a sales consultant for British Gas, responsible for selling energy products to business clients.  His remuneration comprises two elements: his basic salary and commission.  The commission payable is calculated on the number of sales achieved and is therefore variable.  Mr Lock is paid both his basic salary and commission monthly.  However, the commission is paid in arrears following the conclusion of the sales contracts. Commission is a particularly important part of Mr Lock’s remuneration package and, on average, it exceeded his basic pay.  Mr Lock went on holiday during the Christmas period in 2011.  During that period he was paid his usual basic salary and commission for sales that he had made in the preceding period.  However he observed that, as he did not work during his holiday (and therefore made no sales), his remuneration in the months following his holiday were adversely affected.  He received only basic pay as he had not generated any commission during his holiday.  He therefore brought a claim for outstanding holiday pay in the employment tribunal. 

Mr Lock’s case was stayed by the employment tribunal, who made a reference to the CJEU. The CJEU held that commission payments must be taken into account when calculating holiday pay under WTD. The case then returned to the employment tribunal, where the question for consideration was whether the WTR could be interpreted so as to give effect to the EU law under the WTD.  The tribunal noted that, in the recent case of Bear Scotland v Fulton, the EAT held that the WTR should be applied consistently with the WTD, such that non-guaranteed overtime should be included in holiday pay calculations. Leicester Employment Tribunal endorsed this approach, holding that Mr Lock’s commission should be included as part of his holiday pay. This decision gives effect to the Judgment of the CJEU. However, the appropriate reference period to be applied in relation to the calculation of holiday pay including commission payments was not answered. The tribunal advised that this point would be considered at a later date.

In reaching the above decision, the employment tribunal inserted new wording into regulation 16(3) of the WTR, “(e) as if, in the case of the entitlement under regulation 13, a worker with normal hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purposes of section 221.”

Following the government’s introduction of the Deduction from Wages (Limitation) Regulations 2014, which come into effect on 1 July 2015, any potential back-claims will be limited to the two year cap.

A link to the full judgment can be found here.

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