Holiday pay: uncertainty continues

Holiday pay: uncertainty continues

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Author: Antonia Blackwell

Applies to: England, Wales and Scotland

It has recently been confirmed that the Employment Tribunal's decision in Lock v British Gas is to be appealed to the Employment Appeal Tribunal (EAT). We look at the implications of this for employers.

Background

The facts in the Lock v British Gas case are well known. We previously reported the case here. Mr Lock is a sales consultant for British Gas receiving a basic salary and variable commission on a monthly basis. His commission makes up about 60% of his pay. The amount of commission varies depending on the number and type of sales he achieves, paid at the time the sales contract is entered into and not when Mr Lock actually carries out the work to achieve the sale.

Mr Lock took holiday from 19 December 2011 to 3 January 2012 during which time he was paid basic pay and the commission he had earned on sales contracts entered into in the previous weeks. However, as he did no work during his holiday, he did not generate any sales and therefore his salary was lower in the months following him taking holiday as he received no commission, and therefore 'lost' income by taking his holiday.

Mr Lock brought a claim for his 'lost' holiday pay in the Employment Tribunal. Following the decision of the ECJ last year, the Employment Tribunal held that Mr Lock's holiday pay should include an element for his commission. It did so by inserting new words into regulation 16(3) of the Working Time Regulations 1998 as follows: '(e) as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.'

In reaching its decision the Employment Tribunal followed the EAT's earlier judgment in Bear Scotland v Fulton and considered that there was no reason to treat commission and non-guaranteed overtime payments differently.

Next steps

The lawyers acting for British Gas have now confirmed that an appeal had been lodged by British Gas and that the EAT is once again going to have to consider the calculation of holiday pay. In particular, the appeal seems to focus on the fact that non-guaranteed overtime and commission are two distinct types of payment and should not necessarily be treated in the same way so that the decision of the EAT in the Bear Scotland case should not have been followed by the Employment Tribunal in Lock.

What does this mean for employers?

The EAT hearing is likely to take place towards the end of this year, so inevitably there is another period of uncertainty for employers ahead in relation to the calculation of holiday pay. However, all of the recent case law suggests that holiday pay should reflect an employee's 'normal remuneration'. Therefore where commission payments are a regular feature of an employee's pay and impacted by the employee taking holiday, it would still be prudent for an employer to include such commission in holiday pay calculations.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the author

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Antonia Blackwell

Senior Associate

03700 86 4087

Antonia is an employment lawyer with over 14 years experience providing commercially focused advice to businesses and employment advice for individuals on all aspects of employment law, both contentious and non-contentious, including proactively managing employment tribunal claims and providing pragmatic employment law advice, as well as advising on discrimination & equal pay, redundancy & reorganisation, executive appointment & exits, union related matters and TUPE advice.

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