Email Us 01473 688 100

Case Law

Holiday pay should be calculated to include results-based commission

In the latest in a series of decisions the Employment Appeal Tribunal has concluded that Working Time Regulations can be interpreted so that holiday pay should be calculated to include results-based commission.

Lock v British Gas Trading Ltd [EAT] | 22 February 2016

The Employment Appeal Tribunal’s (EAT) decision is not at all unexpected, however unwelcome for employers it may be.

The Background

The EAT decision follows an opinion from the Attorney General, the European Court of Justice and Employment Tribunal. You can read our summaries of the decisions by following the links to the right, but the facts are below.

The Facts

Mr Lock was employed by British Gas as an Internal Energy Sales Consultant. He was paid a basic salary and commission based on the sales he made. It was ‘results-based’.  His results-based commission represented, on average, over 60% of his take home pay.

British Gas paid holiday pay calculated to include his basic salary plus commission on sales he earned prior to his holiday. Whilst on holiday, as Mr Lock was not at work, he did not make sales and did not generate any commission. His pay later in the holiday year was therefore negatively affected.

Mr Lock claimed that his holiday pay should be based on basic salary and average commission.

The ECJ Decision

The ECJ agreed with Mr Lock. The ECJ decided:

  • Paid annual leave means ‘workers must receive their normal remuneration’ for the period of leave.
  • Normal remuneration means that workers are ‘in a position, as regards … salary, comparable with periods of work’.
  • This was not achieved by payment of commission already earned whilst on leave as the financial ‘disadvantage [was] deferred [and] genuinely suffered .. during the period following … annual leave’.
  • The financial disadvantage may deter a worker taking annual leave, more so where commission represents some 60% of take home pay and this is contrary to the objective of annual leave.

The European Court re-emphaised that:

  • ‘any … aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided and included in the calculation of the worker’s total remuneration must necessarily be taken into account for the purposes of calculating the amount to which the worker is entitled during his annual leave’.
  • ‘allowances relating to seniority, length of service and to professional qualifications must be maintained’.
  • ‘components of the worker’s … remuneration … intended … to cover occasional or ancillary costs arising at the time of performance of the tasks which the worker is required to carry out under his contract of employment need not be taken into account…’

The Employment Tribunal and Employment Appeal Tribunal Decisions

Both tribunals made it clear that the question was not about whether the commission received by Mr Lock should be included or not.  The ECJ had made it clear it should!

The question was whether the Working Time Regulations could be interpreted to give effect to the ECJ decision.  Both the employment tribunal and EAT concluded that they could.

The employment tribunal did so by adding wording to the Working Time Regulations.  The effect of the wording added by the employment tribunal, and now confirmed by the EAT, is to require employers to calculate holiday pay based on an average of the previous 12 weeks’ pay.

In Practice

This decision is not a surprise.  It is exactly what I expected.

  • Employers need to consider the following points:
  • Not all commission payments will qualify and have to be included in the calculation of holiday pay.
  • The decision relates only to the calculation of four weeks’ holiday. It does not apply to the full statutory minimum of 5.6 weeks or any additional, contractual, holiday (subject to any contractual provisions).
  • As the employment tribunal decision has been upheld by the EAT, it is binding on employment tribunals considering similar issues. According to the EAT decision there are currently 978 similar claims against British Gas alone and thousands of others which have been stayed pending this decision!
  • Employers with commission schemes are likely to face claims for back pay.
  • This may not be the last of this case. British Gas have sought permission to appeal the decision to the Court of Appeal.

Any employer operating a commission scheme should:

  • assess if this case applies to their commission scheme;
  • if so, consider options and tactics about including commission in the calculation of holiday pay;
  • review or amend commission schemes to reduce the exposure to possible disputes and claims;
  • assess the scope and potential value of claims for back pay.

Quantrills can help with this. It is a very murky area.  Get in touch today by email or call me for a short, no obligation, chat on 01473 694407.  Be one step ahead of your employees who are sure to be considering their options (again!).

Book a phone consultation

Apply for a FREE phone consultation with one of our employment law solicitors to discuss your case, how we can help and find out how much it is likely to cost.

Selected evening and weekend appointments available.

Simon Quantrill

How can we
help you?

01473 688100

Tell us about your case

Our online form is the easy way to tell us about your case and employment details.

Short of time? Our ‘save and return’ feature lets you save your answers and complete the form later.

Reasons to Choose
Quantrills Solicitors

Trusted advice

Attention to attention

Speed of response

Pragmatic solutions

Becoming our client is a straightforward process. However, before choosing Quantrills as your employment law solicitors you’ll want to be completely sure we are the right people to help you achieve your objectives. Having looked at our web site, if you like our approach and would like to discuss how we can help you, getting started is easy.

Step 1

Get in Contact

Contact us and tell us a little about your problem and the help you are looking for.

Step 2

We’ll contact you

We’ll follow up with a free no obligation initial telephone call or email to discuss your case.

Step 3

Invitation to become our client

Provided we are happy we can help you, we’ll invite you to become our client.

Step 4

You instruct us

If you agree to our invitation, you simply have to confirm this is writing or by email and confirm your instructions.

Step 5

We’ll start to act for you

Congratulations! You are now a client of Quantrills and we’ll start work on your instructions.

At Quantrills we are flexible in how we work with you and how we progress your case...

In Person

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.

Get Directions

By Telephone

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.

01473 688 100

Or request a call back

By Online Form

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.

View Forms

By Email

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.

Email us

FREE Employer

Subscribe to our email based hrlegalnews to receive details of our Knowledge Bank & HR Updates updates and our forthcoming events.

Client Testimonials

View more