Are employees entitled to commission during periods of annual leave?
Yes, the EAT has finally confirmed, in the long-running case of Lock v British Gas Trading Ltd.
Calculating Holiday Pay
Background
Article 7 of the Working Time Directive (WTD) provides that member states of the EU must ensure that workers have the right to at least 4 weeks’ paid annual leave.
The WTD is implemented into UK law by the Working Time Regulations (WTR 1998), which entitles workers to 5.6 weeks’ annual leave paid at the rate of a week’s pay for each week of leave. This is the equivalent to 28 days for those who work 5 days a week.
Facts of the case
Mr Lock was employed by British Gas as a salesman. His remuneration package included a basic salary plus a results-based commission that was greatly in excess of his basic salary. His commission was determined by the number and type of contracts that he persuaded customers to enter into in the given period, and was not dependent upon how much work was done.
Mr Lock took a number of days’ holiday. The remuneration paid to him during his holiday periods consisted only of his basic salary and any commission which had been earned earlier but which happened to be paid at that time. British Gas claimed that as he was not working he could not earn any commission whilst he was on holiday.
Mr Lock brought an unlawful deduction from wages claim in the employment tribunal, arguing that the method used by British Gas to calculate his holiday pay was contrary to the WTR 1998.
Mr Lock claimed that the WTR 1998 (‘the domestic legislation’) must be interpreted in a way that conforms to the requirements of the European WTD.
Decision
The employment tribunal, following previous case law precedent in Bear Scotland & Others v Fulton & Others [2015] concerning overtime, held that the WTD does require results-based commission to be taken into account when calculating an employee’s holiday pay. The employment tribunal referred the case to the European Court of Justice, who concluded that because Mr Lock’s commission was directly linked to the work he carried out, it must be taken into account.
The EAT in Bear Scotland stated that the WTF requires pay that is ‘normally received’ to be paid during periods of holiday. Payment that has been made for a significant period of time will be ‘normal’. Additionally, there must be an intrinsic link between the payment claimed and the work that a worker is required to carry out.
British Gas appealed this decision, claiming that it was ‘judicial vandalism’ to follow EU law and to ignore the plain meaning of domestic legislation, given that EU law is only binding on public authorities.
The Employment Appeal Tribunal (EAT) dismissed this appeal, holding that domestic legislation can be interpreted in line with EU law and there were no exceptional circumstances to justify departing from the reasoning set out in Bear Scotland.
In Bear Scotland the EAT ruled that if commission is not taken into account, the worker will be placed at a financial disadvantage when taking statutory annual leave, since no commission will be generated during their holiday period. In such circumstances, the worker might be deterred from exercising the right to annual leave, which would be contrary to the WTD’s purpose.
Comment
We should add one further note of caution; it is likely that British Gas will be granted permission to appeal the decision in the Court of Appeal.
As a result of this decision, thousands of workers will now be able to claim holiday pay previously denied to them. Employers would be well advised to review their current holiday pay allowances and policies in relation to elements such as overtime and commission and should seek legal advice on how they calculate holiday pay.
The decision appears to represent an increased commitment to the health and wellbeing of staff, and will lead to additional expense for employers. However, employers can take comfort in the fact that, as a result of the Deduction from Wages (Limitation) Regulations, employees may now only claim unlawful deductions from wages for a period of 2 years.
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