Holiday pay – Lock v British Gas - Court of Appeal gives judgment

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The Court of Appeal (CA) has given its decision in the long running case of Lock and another v British Gas Trading.

As expected, the CA has upheld the Employment Appeal Tribunal (EAT)’s decision that UK law must be interpreted compatibly with the EU Working Time Directive (WTD) and its requirement for ‘normal remuneration’ for holidays. Certain commission payments should be included in the calculation of holiday pay for the basic four weeks annual leave derived from the WTD.  

Background

Mr Lock was a British Gas salesman who, under his employment contract, received commission for successful sales on top of basic pay. Mr Lock could not earn commission whilst on holiday and so his holiday pay was based on basic pay only. He brought a claim in the Employment Tribunal (ET) that his holiday pay should reflect what he would have earned from commission during his holiday.

Following a referral by the ET, the Court of Justice of the European Union (CJEU) decided that, as a matter of EU law and according to the principle of ‘normal remuneration’ for holiday under the WTD, employees like Mr Lock should have commission included in holiday pay.

The ET then considered the rules under the Working Time Regulations 1998 (WTR) and the ‘week’s pay’ provisions in the Employment Rights Act 1996 under which employees like Mr Lock, with normal working hours and receiving commission which was not based on the amount of work done, seemed to be entitled to basic pay only for holidays. The ET found that these rules could be interpreted so as to give effect to EU law and to provide for the commission to be included in holiday pay. However, it had to effectively rewrite UK law to do this. British Gas challenged this approach in the EAT, but the EAT agreed with the ET. British Gas then appealed to the CA.

EEF has reported on all of the above decisions – see our Case law updates: Holiday pay must include commission UK law on holidays is out of line with WTDHoliday pay - Lock v British Gas – employment tribunal gives judgmentHoliday pay - Lock v British Gas - Employment Appeal Tribunal gives judgment.

Court of Appeal decision

The question for the CA was whether it was possible to interpret the WTR consistently with EU law. In order to achieve this, the ET (and the EAT) had had to go so far as to read the WTR as if they contained a new Regulation, effectively treating Mr Lock’s commission as if it were based on the amount of work done rather than results based.

After detailed consideration, the CA rejected British Gas’s arguments and found that it should and could interpret the WTR to include Mr Lock’s commission payments in the holiday pay calculation. However, the CA did stress that its judgment was confined to Mr Lock’s case. Further, whilst it was necessary to imply new words into the WTR, the CA questioned whether the words that the ET had written in to the legislation to include Mr Lock’s commission were in fact the correct ones. The ET seemed to have interpreted the legislation in such a way that all types of commission and similar payments would be included in holiday pay, whereas the CA thought this should be limited to contractual results-based commission.

What next?

British Gas has acknowledged that it has around 1,000 potential and stayed claims awaiting the final outcome of the Lock case, so it is possible that it will seek to appeal the CA’s decision to the Supreme Court. We will keep you updated.

It should be noted that the Court of Appeal decision, and the previous decisions of the CJEU, ET and EAT, have all purely concerned the principles of interpretation of UK law. The mechanics of how the holiday pay calculation for Mr Lock would actually work to reflect his commission remains a live issue, to be tackled by the ET once the interpretation issue is resolved. As well as the issue of just which types of commission need to be included in holiday pay, there is likely to be much debate as to the precise calculation and its implementation in practice.

Lock v British Gas – a Brexit issue?

Whilst we remain a member of the EU, we are required to interpret UK legislation in line with European Directives and decisions of the CJEU and this is what the courts in Lock have been doing.  However, one of the Government’s recent announcements, in the run up to triggering Article 50 of the Lisbon Treaty and commencing negotiations about the terms of the UK’s exit from the EU, is an intention to end the jurisdiction of the CJEU in the UK.    This would not mean that all current EU derived employment law would simply fall away, but CJEU interpretations would no longer bind UK courts and ETs and there would be opportunity to scrutinise, amend, repeal or improve on aspect of law in the UK which are EU derived.  In such circumstances, working time and holiday pay are likely to be high on the agenda for such scrutiny.

If you want to further explore potential changes to employment law and changing demands on HR flowing from the Brexit, you should join us at a session of our national seminar - What does Brexit mean for HR?  For further details or to book, click here.

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Principal Legal Adviser

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