• Tar Tumber
  • 27 March 2015

Lock v. British Gas – ruling on commission and holiday pay

We finally have an outcome in the case of Lock v. British Gas, which raised the question of whether commission payments should also be factored into the calculation of holiday payments.

In this case, which went to the European Court of Justice (ECJ) and came back to the UK Tribunal system for final application, Mr Lock was a salesman, paid a basic monthly salary with variable commission based on the sales he made, and not the actual time worked to achieve the sales. His commission made up approximately 60% of his overall salary package.

Mr Lock was paid holiday based only on his basic salary, and as he could obviously not earn commission whilst on holiday, he would lose income. He took leave between December 2011 and January 2012, and then brought a claim in respect of lost holiday pay.

Originally, the Employment Tribunal (ET) could not decide if EU laws meant that holiday pay should include the commission payments he would have earned if he had not taken holiday. This case was therefore referred to the ECJ who decided that Mr Lock’s commission was directly linked to the work he did and so it should be factored into the holiday pay calculation. How it would be factored in, was left to the UK Tribunal system, and it is from that Tribunal case, heard in February 2015, with judgement published on 25 March 2015, that the key point arises.

The Tribunal has decided that holiday pay should include the commission element and the Judge proposed the Working Time Regulations 1998 be amended to include the following wording:

“(e) as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.”

The Tribunal also confirmed that the calculation of commission only applies to the four-week Working Time Directive holiday and not the 5.6 weeks under UK law, or indeed any additional contractual holiday.

In my opinion, this is not a surprise outcome, and really follows logically from the earlier Tribunal findings in the Bear v. Scotland Fulton case in of November 2014. Here, the Tribunal found that ‘regular’ overtime should be included in the holiday pay calculation for exactly the same reasons i.e. so that the worker receives payment on holiday which is ‘comparable to periods of work’.

One thing that still appears to be missing from the latest outcome is guidance on the actual ‘reference period’ that employers should use when trying to calculate holiday payments i.e. how many weeks back should they refer to when looking at what commission or overtime payments should be factored in. This, it appears, is guidance for another day. In the meantime, please ensure that commission payments are also reviewed when calculating your worker’s holiday payments.

If you need any further guidance, please contact us on +44 (0) 871 777 8881.