In British Gas Trading Ltd v Lock, the EAT has confirmed that the Working Time Regulations 1998 can be interpreted to include results-based commission in statutory holiday pay in line with European law.

Background

This case represents the latest instalment in a series of cases concerning the correct calculation of holiday pay. A few months ago, an employment tribunal held that the correct interpretation of the calculation of statutory holiday pay must be in line with EU law and based on ‘normal remuneration’. This decision came after the case had been referred up to the European Court of Justice.  

This meant that despite the interpretation conflicting with our own domestic legislation (namely the Working Time Regulations 1998), any calculations must be construed in line with EU law.

The upshot was that a large category of workers, including Mr Lock (who was employed by British Gas as an internal energy sales consultant) must have their statutory holiday pay calculated to include regular commission payments. This was of great significance for Mr Lock, whose pay was made up of 60% commission.

Presumably because this has enormous financial ramifications for British Gas and its substantial workforce, the Company appealed against the ET decision.

EAT Decision

The EAT gave the appeal short shrift and decided the decision was not manifestly wrong nor did any of the exceptional circumstances that would allow a decision to be overturned apply. The EAT confirmed that the Working Time Regulations must be interpreted in light of the European case law which provides that holiday pay should be calculated on the basis of a worker’s normal remuneration. Where a worker earns regular commission, those commission payments must be taken into account when calculating holiday pay.                 

Comment

It is now abundantly clear that statutory holiday pay must be calculated to include elements of regular commission. However, what is less clear is what reference period should be used. Under UK law, a 12 week reference period is adopted when it comes to calculating a “week’s pay” for workers who have variable working hours and/or pay. However, there may be an argument this is not the right approach in all cases (e.g. where commission varies throughout the year) and that perhaps a 12 month average would be more appropriate.

It is worth remembering that the decision in this case only applies to the European holiday entitlement of 4 weeks (20 days for full time workers) and not to the additional 8 days entitlement under the UK Working Time Regulations, or any contractual holiday entitlement over and above this entitlement.

It should be noted that this case involved employees with normal working hours and regular basic pay. Under UK law, holiday pay is calculated by reference to the definition of a ‘week’s pay’ under the Employment Rights Act 1996. This sets out that:

• for employees with ‘normal working hours’ whose pay varies (either by reference to the hours worked or the amount of work done), a ‘week’s pay’ (and hence their holiday pay) must be calculated using the employee’s average remuneration over the previous 12 working weeks. Under this definition, variable elements are only included if it can be said that pay varies with the amount of work done (for example a productivity bonus for producing a certain amount of units), rather than with the success or otherwise of that work (for example most commission schemes which pay out on successful sales).

• for employees who do not have ‘normal working hours’ a ‘week’s pay’ is based on their average weekly remuneration for the hours worked, including overtime pay, bonuses and commission, calculated over the previous 12 working weeks.    

So employees with variable hours and/or pay have always had their entitlement to 28 days holiday pay under the UK Working Time Regulations calculated on the basis of their normal remuneration.

British Gas Trading Ltd v Lock and another UKEAT 0189/15, 22 February 2016 (Bailii)