In Lock v British Gas the Court of Appeal has ruled that employers must include compensation for any results-based commission that would ordinarily be earned when calculating holiday pay.
The background to this long running case was that Mr Lock, a salesman, claimed that in taking holiday he missed out on normal pay as he was unable to generate commission. The European Court of Justice ruled that since Mr Lock’s commission was directly linked to the work he carried out, the employer was required under EU laws to take it into account when calculating his holiday pay.
The main argument since has been whether the UK national laws, i.e. the Working Time Regulations 1998, could be interpreted to give effect to this ruling. The employers had argued it could not and that any claim for compensation should be directed against the Government for failing to give effect to the EU laws.
However, this is an argument that has been rejected by the Court of Appeal, which agreed with the previous rulings of the Employment Tribunal and Employment Appeal Tribunal that, with some necessary ‘tweaks’, the national legislation could be read in such a way as to give effect to the EU laws.
It is not yet known whether British Gas intends to appeal to the Supreme Court. If it does, a final decision on the issue may not be made until late 2017. Interestingly, at which point the formal procedure for leaving the EU and ending the overall precedence of EU employment laws will have already been triggered.
The Government has recently made it clear that it does not intend that Brexit will mean all existing EU employment rights will end. It will though review and repeal laws that it does consider unnecessary in the future. The calculation of holiday pay under the Working Time Regulations 1998 is widely considered to be one of the most likely areas for change when that review is carried out.
In the meantime, employers that do pay commission know that they have to include commission in any calculation for holiday pay, but are still left with some uncertainty over how to do this in practice.