The Employment Appeal Tribunal has issued its judgment in the case of British Gas Ltd v Lock. Arguably the most awaited decision of the year thus far, this case involves a salesman for British Gas (Mr Lock) who claimed his holiday pay was underpaid as it reflected only his basic salary and took no account of any commission (which accounted for 60% of his take home earnings) he would have earned had he been at work.
In May 2014, Mr Lock’s case was referred to the European Court of Justice (CJEU) for guidance as to whether commission should be included in statutory holiday pay. It was the opinion of the CJEU that it should and so the matter was referred back to the Leicester Employment Tribunal, which in March 2015 followed the preliminary hearing of the CJEU and held that employers had to take account of performance-based commission payments when calculating holiday pay.
British Gas promptly appealed that decision to the Employment Appeal Tribunal which heard the case in December 2015 on the basis of the three main appeal points:
- That the Working Time Regulations (WTR) could not be interpreted in their current form so as to follow the CJEU’s guidance and the Employment Tribunal had erred in doing such a thing;
- That another earlier Employment Appeal Tribunal judgment in the case of Bear Scotland v. Fulton (2015), which held that the Working Time Regulations 1998 could be interpreted to include non-guaranteed overtime payments as holiday pay, was not applicable to Mr Lock’s claim (which instead related to commission). The case of Bear Scotland had been referred to by the Leicester Employment Tribunal in its own decision; and
- That the case of Bear Scotland had been wrongly decided in the first place to the extent that it was manifestly wrong or that there were exceptional circumstances at play which required the EAT to deviate from the position it had adopted in Bear Scotland (in relation to what constitutes a “week’s pay”).
In the EAT’s decision published this week, Singh J. (sitting alone) held that there was no reason why the WTR could not be interpreted to follow the CJEU’s ruling in the Lock case. While this involved incorporating additional wording into the regulations (as the Employment Tribunal had done), this was permissible. Secondly, the EAT also held that despite the fact Bear Scotland concerned non-contractual overtime, the logic and drive of the EAT’s approach in Bear Scotland should apply equally to commission payments. Further, Singh J. held that no such exceptional circumstances existed to warrant a departure from Bear Scotland – “if Bear Scotland was wrongly decided, then it must be for the Court of Appeal to say so”.
Despite the fact the EAT’s judgement was eagerly awaited, it hasn’t really provided any further guidance on the question of what pay elements need to be accounted for in holiday pay given the fact the EAT rejected British Gas’s appeal. Accordingly, all employers who pay their employees commission would still be advised to make arrangements to have commission factored into holiday pay.
For many private sector employers, the EAT’s decision was not what was hoped for. Thousands of unpaid holiday pay claims had been sisted by employment tribunals across the country in anticipation of this decision. The fact that British Gas have confirmed their intention to appeal this judgement to the Court of Appeal in England means this area of law remains in flux.
Additionally, the judgement of the EAT speaks very little to the actual mechanics of how employers will have to calculate commission payments for holiday pay. Most notably, what reference period will an employer need to look at in order to determine the correct amount of commission to be included in holiday pay? Will this vary from employer to employer or sector to sector? The latter question is particularly pertinent for those involved in industries where there can be significant seasonal fluctuations in terms of commission earned.
While it is unfortunate that the EAT did not provide even some degree of guidance in terms of how to do this, putting in place such a system now would not only help employers reduce any future liability in respect of an unpaid wages claim (on the basis of non-payment of commission) but also demonstrates a level of good faith towards any potentially affected employees as well.
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Contact our employment law solicitors in Glasgow for advice on pay disputes or any other employment issue you may have, on 0141 413 9411 or complete an online enquiry form and we will get back to you.
