The eagerly awaited judgment in Lock v British Gas was handed down by the Leicester employment tribunal on 25 March 2015 - what does the decision mean for employers?
The law in relation to the calculation of holiday pay has been in a state of flux for some time and employers have been hoping for definitive guidance from the courts to assist with compliance.
We considered the position regarding overtime payments and holiday pay here.
Following the European Court of Justice's (ECJ) ruling last year, the Lock case was remitted back to an employment tribunal in Leicester to determine various issues around holiday pay and commission payments. Perhaps not surprisingly given the complexity of the law in this area, the judgment adds little to the reasoning of the Employment Appeal Tribunal (EAT) in the previous case of Bear Scotland v Fulton and does not take us much further.
As a sales consultant Mr Lock earned a significant amount of commission in the normal course of his duties in addition to his basic pay. His contractual commission scheme was intended to reward his performance and depended on him making sales, it did not vary according to the number of hours he worked but upon the results he achieved. When he took annual leave he was unable to generate any commission during that period and consequently received less remuneration on his return to work. In its previous judgment the ECJ noted that this sort of financial impact may actually deter a worker from taking annual leave and that this was contrary to European law.
Employment tribunal's decision
The Employment Judge decided that words could be read into the Working Time Regulations 1998 (WTR) in order to give effect to the ECJ's interpretation of the Working Time Directive, in the same way that the EAT had done in the case of Bear Scotland v Fulton in relation to non-guaranteed overtime payments. The tribunal found there was no reason to treat non-guaranteed overtime payments and commission payments differently.
The tribunal decided to re-write the week's pay provisions in the Employment Rights Act 1996 for working time cases thereby placing an obligation on employers to include this type of commission in their holiday pay calculations.
The tribunal declined to rule on the following questions which it stated would be considered at a later date:
- Where an existing commission scheme is structured to compensate for annual leave, is there still a requirement to include commission in holiday pay calculations?
- What is the correct reference period for calculating holiday pay which reflects commission payments?
Undoubtedly further decisions at an appellate level will be needed to give a fuller picture for employers. Interestingly, the Employment Judge in Lock commented that the parties in Bear Scotland did not intend to pursue an appeal to the Court of Appeal - so it is likely to be some time before we have such a decision.
The tribunal confirmed that its decision was only relevant to the four-week leave period granted by regulation 13 of the WTR and not to the additional period of 1.6 weeks' leave granted by regulation 13A.
Employers should review employment contracts, commission schemes and holiday pay processes to ensure they are compliant with the new legal requirements.