Holiday Pay Revisited: Employers Must Pay Commission

Are you paying commission as part of holiday pay? The Employment Appeal Tribunal (EAT) has confirmed that employers have to pay it, following the long-running case of Lock v British Gas Trading Ltd.

Mr Lock, a British Gas salesperson, had a remuneration package including a basic salary plus commission, based on the number and type of contracts to which customers agreed. When he took annual leave, he would only receive basic pay (considerably less than his usual salary).

Lock argued that this was a disincentive to taking annual leave and lodged a claim with an employment tribunal, which referred the case to the European Court of Justice (ECJ) to clarify the relationship between holiday pay and commission for workers where commission was a regular part of their pay.

In British Gas Trading Ltd v Lock and anor, the Court of Appeal has upheld the EAT’s decision that the Working Time Regulations 1998 can be interpreted compatibly with the EU Working Time Directive to include results-based commission payments in the calculation of holiday pay for the basic four weeks’ annual leave provided by Reg 13.

The Court of Appeal stated that Article 7 must be calculated by reference to the worker’s ‘normal remuneration’, including commission. The question for the Court was whether it was possible to interpret the WTR consistently with Article 7. This depended on whether a conforming interpretation went with the ‘grain’ or ‘underlying thrust’ of the legislation. The Court observed that the WTR were enacted solely and deliberately to implement the Directive. It must therefore be right that the UK government intended to fulfil the obligations arising under the Directive which included any requirements that were not apparent at the time when the Directive was enacted.

In the case of most types of worker, the WTR does provide for holiday pay to be calculated by reference to ‘normal remuneration’. There are a number of situations however where workers would receive lower wages for time taken as holiday. The Court of Appeal concluded that the ‘grain’ or ‘thrust’ of the WTR was to provide for holiday pay measured by reference to Article 7, which had been subsequently interpreted by the ECJ as requiring the worker’s ‘normal remuneration’ to be taken into account.

The Court could and should interpret the WTR accordingly, so as to include commission payments in the calculation. This required the implication of words necessary to make that meaning clear. The position still remains unclear for those workers who receive a results-based annual bonus, or the worker who receives commission only when a particular level of turnover or profit is achieved.

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