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24 Feb 2016

The Employment Appeal Tribunal (EAT) confirms commission payments should be included in holiday pay

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The EAT held in British Gas Trading Ltd v Lock that UK legislation on holiday pay should be interpreted to conform with EU law, which requires results-based commission to be included in the calculation of a worker's holiday pay.

British Gas has sought leave to appeal this decision so this is unlikely to be the final word on the subject.

Background

Mr Lock was employed as a salesman. His remuneration included result-based commission in addition to basic salary. The commission he received was significantly greater than his basic salary and was dependant on him persuading customers to agree to buy energy products from British Gas. He received his commission in arrears and, as he could not generate any commission while on holiday, his remuneration was severely impacted during any post-holiday period.

Facts

He brought a claim for unlawful deduction of wages in respect of the pay received during a period of holiday taken, which he argued should have been enhanced to take account of the commission he would normally receive.

Following EU law, the Employment Tribunal held that commission payments should be included in holiday pay for the 4 weeks' statutory minimum holiday provided under EU law and therefore Mr Lock had suffered an unlawful deduction of wages when his holiday pay only included basic pay.

British Gas appealed to the EAT and, amongst other points, argued that a recent decision of the EAT in a similar case regarding non-guaranteed overtime that supported the inclusion of other payments besides basic pay in holiday pay (Bear Scotland v Fulton) (see our alert from 4 November 2014) was wrongly decided and in any event should not have any bearing on this case on the basis that the decision applied to overtime cases only.

The EAT disagreed with that argument and has dismissed the appeal from British Gas.

What now?

This decision does not come as a complete surprise. It is a fundamental principle of the right to holiday that workers should not be discouraged from taking their leave and so should receive their normal remuneration during that time. However, the ongoing cases and inconsistency between the language of UK legislation and EU law on these points continue to create uncertainty on the issue of calculating holiday pay which workers receive as part of their regular remuneration payments supplemental to their basic pay.

We can expect British Gas to fight this all the way as it is facing over 900 commission and holiday pay claims in employment tribunals across the country, which have been stayed pending the outcome of this appeal. Until the appeal is heard it is also difficult for employers to know how to mitigate any potential risks and exposures.

A comprehensive review and coherent guidance from the UK Government is long overdue in this area, particularly in relation to the calculation of holiday pay in this situation and on the carry-over of holiday pay following long-term sick leave. Until this happens or there is a more definitive judgment on the issue some significant uncertainty will remain.

The issue continues to attract media attention and with it an increased awareness of workers who will question their own arrangements. Employers who pay workers results-based commission or other supplemental payments such as overtime pay, shift allowances should aim to take steps to quantify and minimise their potential exposure to similar claims.

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