As expected, the Employment Appeal Tribunal has agreed with the Employment Tribunal’s decision that UK law can be rewritten to reflect commission in the calculation of 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 and his holiday pay ought to reflect the commission he would have earned. He claimed that the method of calculating his holiday pay did not conform to the requirements of the European Working Time Directive.
CJEU decision and Employment Tribunal decision
When Mr Lock first took his case to the Employment Tribunal in 2012, it made a reference to the Court of Justice of the European Union (the CJEU) for a preliminary ruling on the questions of whether the UK was required to reflect commission in its rules for calculating holiday pay and, if so, how employers should go about doing the calculation.
The CJEU ruled that employees should have commission included in holiday pay for the 4 weeks holiday entitlement derived from the European Working Time Directive. However, the CJEU declined to give a clear answer to the question of how this should be achieved; instead it returned the case to the ET to resolve this question. The ET published its judgment in March 2015, concluding that the Working Time Regulations could be interpreted so as to give effect to EU law and include commission in the calculation of holiday pay. (The judgment purely concerned the principles of interpretation of UK law; the ET was to address the mechanics of how the calculation would work for Mr Lock at a later date.)
British Gas then appealed this decision of the ET, arguing that UK law could not be manipulated in this way.
The EAT has upheld the ET’s decision that UK law should be rewritten to ensure that commission is included in holiday pay for the minimum 4 week entitlement. Given the EAT’s recent decision in Bear Scotland v Fulton (where it was found that words should be implied into UK law to ensure that overtime is reflected in holiday pay), this decision is not a surprise.
This judgment is, of course, not an answer to how to deal with the mechanics of a holiday pay calculation where employees receive results based commission. Now that we have the EAT decision on the principles of interpretation of UK law, a date will be set for the case to continue in the ET.
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 debate over the precise calculation method and its implementation in practice, including how to deal with the averaging of commission and reference periods and whether all commission schemes are affected.
We will cover this case in our employment law updates and will of course update you as the Lock case continues in the ET.