Lock v British Gas
The Supreme Court has refused to hear an appeal by British Gas in this case, which was all about commission counting towards holiday pay for 4 weeks leave – see below for full background.
Importantly we now know that representative results-based commission and non-guaranteed overtime (i.e. overtime which workers are contractually obligated to perform) MUST be included in the calculation of holiday pay for the first 4 weeks of holiday under the Working Time Regulations. Furthermore, this is a right which is applicable now.
However, the position with respect to truly voluntary overtime (i.e. overtime which workers are not contractually obligated to perform) remains unclear. Although there are a number of first instance tribunal decisions which do suggest that truly voluntary overtime should be included, there is no binding UK authority on the point.
The upshot and easy thing to understand all this is to say that whatever is the ‘normal’ pay of an employee when at work should be the same pay for when they are on holiday too, not just their basic – if commission and overtime is contractual and normally paid. Previously, many employees whose wages included commission lost a lot of money lost out whenever they took a holiday. This case redresses that unfairness.
Background
Mr Lock, a sales consultant with British Gas, claimed in the employment tribunal that he was owed money on the basis that his holiday pay did not reflect what he would have earned from results-based commission. On top of his basic pay, he is paid monthly commission, which fluctuates based on his sales.
The tribunal asked the European Court of Justice (ECJ) for clarification on whether or not it was a breach of the Working Time Directive for the Working Time Regulations 1998 to limit the calculation of a week’s pay for annual leave to basic pay and to exclude commission.
In Lock v British Gas Trading Ltd [2014], the ECJ held that a worker’s commission payments must be included in the calculation of his or her holiday pay. The case then returned to the UK courts.
In October 2016, the Court of Appeal ruled that holiday pay must include compensation for any results-based commission that would ordinarily be earned by a worker.
The Supreme Court’s refusal for leave to appeal means the case will now go back to an employment tribunal to calculate the level of compensation that British Gas should pay Mr Lock (and approximately 1,000 other employees waiting in the wings who have suffered similar losses).
Comment: The refusal for leave to appeal means that this simplifies the government’s task in considering changes to the Working Time Regulations to give a definitive formula for calculating holiday leave.
However, there is some fear that with the UK appearing set to leave the EU and the European Court of Justice in around two years, by the time that new regulations are drafted, the continuing legal basis for including commission in holiday pay may no longer apply.
In reality, although the government will in theory be able to change the law so that it does not comply with EU requirements the fact remains that the Prime Minister has already confirmed that workers’ rights will not be diminished under a future Tory government as a result of the UK’s exit from the EU, and so it is likely to be the case that workers will, into the future, still be entitled to expect pay for the first 4 weeks of annual leave not to diminish as a result of holiday having been taken.
What you should do when paying staff for holiday?
For now, the best approach is for holiday pay to be based on an average pay in the last 12 weeks worked before leave is taken when workers get commission or overtime as a significant part of their normal pay.
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