Should Holiday Pay Include Commission?

Year Published: 2017

It’s the end of the line for British Gas who have been refused permission to appeal to the Supreme Court in the long running, holiday pay and commission case of Lock v British Gas Trading.

What has happened in the Lock v British Gas case?

In 2012 Mr Lock issued a claim against British Gas saying the way his holiday pay was calculated acted as a deterrent to taking holidays as they failed to take into account his commission and this breached EU law.

James Heath, Associate Solicitor in the Employment Law & HR team at SAS Daniels

James Heath, Associate Employment Law Solicitor

In 2014, the European Court of Justice (ECJ) agreed with Mr Lock and ruled that British Gas’ policy acted as a disincentive to workers wanting to take time off and that this was contrary to the EU Working Time Directive’s aim of not discouraging workers from taking breaks for health and safety reasons.

When the case returned to the UK, an Employment Appeal Tribunal (EAT) agreed that result-based commission should be factored into holiday pay calculations which was a decision upheld by the Court of Appeal. The only place left for British Gas to go was the Supreme Court and that door is now closed.

What do employers need to be aware of when calculating holiday pay?

Statutory holiday pay must include results-based commission, for example commission on sales. This means that the first 4 weeks of statutory holiday pay must include an amount in respect of results-based commission, as well as non-guaranteed compulsory overtime. The decision only applies to the four weeks’ holiday entitlement under the European Working Time Directive, and not the additional 1.6 weeks provided by the UK’s Working Time Regulations 1998. The Working Time Regulations must be read purposively to implement EU law to this effect. So, if the current approach continues, it is likely that voluntary overtime may also need to be included but this matter maybe subject to appeal.

In terms of the reference period for averaging pay including results-based commission, the parties in this case accepted that the provisions in the Employment Rights Act 1996, stating pay is to be averaged over a 12 week period, should apply.

For more information on calculating holiday pay or any other employment matters, please contact James Heath in our Employment Law & HR team on 01625 442110.

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