The employment tribunal has ruled that UK law can be rewritten to reflect commission in holiday pay.
Mr Lock was a British Gas Salesman who received commission for successful sales on top of basic pay. His holiday pay was based on basic pay only. Mr Lock argued that, whilst he was on holiday, he could not generate commission. He claimed that his holiday pay ought to reflect what he would have earned from commission during his holiday.
The employment tribunal referred to the Court of Justice of the European Union (the CJEU) the question of whether the UK was required to reflect commission in its rules for calculating holiday pay.
In a landmark ruling last year, the CJEU ruled that, as a matter of EU law, employees should have commission included in holiday pay. However, the CJEU declined to give a clear answer to the question of how this should be achieved, but instead remitted the case to the UK employment tribunal to resolve this question.
The Employment Tribunal has just published the first stage of its judgment on this issue. The issue of the correct reference period for calculating average commission and how much (if any) money is actually due to Mr Lock has been deferred to a later stage.
The judgment purely concerns the principle of whether the courts can re-write the UK rules on holiday pay in order to comply with EU law.
The ET decide they can re-write the UK rules to ensure commission is included. This is a similar conclusion to that reached by the ET and EAT in Bear Scotland (see EAT publishes holiday pay judgment) in which the courts ruled that UK law should be interpreted to reflect overtime in holiday pay.
The ET rule that Mr Lock should be treated as a “piece worker” for the purposes of the UK rules for calculating holiday pay. This has the effect that his holiday pay should be calculated according to his normal working hours at his average actual hourly rate of pay (including commission), instead of just basic pay. They reached this decision because it had already been agreed that Mr Lock had normal working hours for the purposes of the UK rules on calculating holiday pay.
The ET do not address the mechanics of how the calculation for Mr Lock will work in practice. The current rules for piece-workers apply a 12-week reference period, but the ET do not comment on this in today’s judgment. Instead, they defer the issue of whether this is the correct reference period in Mr Lock’s case to a later date.
This decision is not surprising, given that the CJEU has already ruled that commission must be included in holiday pay. Unfortunately, it does not take us much further in terms of addressing the practicalities of how to achieve this:
- The case does not address what happens if a 12–week reference period is not a fair representation of what the employee would normally earn, or if it is administratively impractical because of your payroll system.
- It does not look at how the calculation might differ for shift workers or those without normal working hours.
- It is also unclear whether all commission schemes are affected. For example, what if your commission scheme is based on annual targets and you already take account of the fact that employees would be taking holidays when setting the targets? What if employees genuinely do not lose out on commission by taking their holidays?
- The employment tribunal was also at pains to point out that this case does not concern the question of whether other types of reward (e.g. discretionary bonuses) ought to be taken into account when calculating holiday pay.
Companies should generally be including commission in holiday pay unless there is a good case for arguing that the commission scheme already compensates for holidays. That said, there is still room for much debate over the precise calculation method and its implementation in practice.
The Lock case continues in the Leicester employment tribunal and we will keep you updated.
Further EEF Support
The practical implications of Lock is one of the issues we will be addressing in our solution-orientated seminars on holiday pay starting shortly. For more information and to book your place, click here.