Holiday Pay and Commission – British Gas Trading Ltd v Lock

The Court of Appeal has handed down its decision on British Gas Trading Ltd v Lock. The case considers the calculation of holiday pay and the interpretation of ‘normal remuneration’.

Lock was employed as an energy trader whose remuneration package included commission, which made up approximately 60% of his basic pay. The amount of commission Lock received depended on the sales he achieved. Therefore, when taking holiday, Lock would not achieve sales and would subsequently lose income. Lock relied on British Airways Plc v Williams and ors [2012] UKSC 43 in which the ECJ held that in order for holiday pay to reflect normal remuneration it should be enhanced to include commission.

Following a referral by the EAT to the ECJ due to a conflict between domestic and EU law, the ECJ held in a preliminary ruling that commission payments must be taken into account when calculating holiday pay under Article 7 of the Directive. The matter was then referred back to the EAT to consider whether the Working Time Regulations 1998 SI 1998/1833 (WRT) could be interpreted compatibly with the EU Working Time Directive (No.2003/88) to include results based commission payments when calculating holiday pay.

The EAT, and subsequently the Court of Appeal, confirmed that the WTR could be interpreted compatibly with the Directive to include commission payments in the calculation of holiday pay despite the natural wording of the legislation saying it cannot. The Court of Appeal solved this problem by reading the legislation as if it contained a new sub-section.

It was decided that a worker with normal working hours whose remuneration included commission, would be considered to have remuneration which varied depending on the amount of work done. This means that for these workers a week’s pay is to be calculated by taking the average of the worker’s remuneration over a 12-week period (including commission) under s 221(3) instead of s 221(2) of the Employment Rights Act 1996.

In giving the Court’s judgement, Sir Colin Rimer confirmed that holiday pay under Article 7 must be calculated by reference to ‘normal remuneration’, which includes commission payments following clarification by the ECJ. He went on to state that it must be presumed that the intention of the UK government was to fulfil the obligations of the Directive, which includes those requirements which were not clear at the time the Directive was implemented.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.