And The Law Says

Holiday pay back in the spotlight: what does the Lock decision mean for you?

March 26, 2015


By Sara Sawicki and Joanne Tindall

(Lock v British Gas)

The case of Lock v British Gas returned to the Leicester Employment Tribunal yesterday to determine the practical application of the decision of the Court of Justice of the European Union (“CJEU”) last year.

Why is this an issue?

The case of Lock v British Gas was referred to the CJEU by Leicester Employment Tribunal last year. The issue was whether Mr Lock’s holiday pay should take account of what he would normally earn through commission. This amounted to approximately 60% of his pay. The CJEU ruled that the purpose of providing paid holiday leave under the Working Time Directive is to make sure that workers can take time off without a fear of losing out on the salary that they could have earned had they been working – including any money that they could have earned through a commission scheme.

The practical application of that principle in the UK was tricky, because the Working Time Regulations 1998 (“WTR”) do not conform to the EU Working Time Directive (“Directive”). The case was referred back to Leicester Employment Tribunal to consider whether UK legislation could interpreted in line with the CJEU’s decision.

So what do YOU need to know?

The Leicester Employment Tribunal determined yesterday that commission should have been included in Mr Lock’s holiday pay.

The tribunal overcame the inconsistency between the WTR and the Directive by applying some judicial redrafting to the WTR so as to include sales commission in the calculation of holiday pay. This is essentially the same approach in redrafting the WTR that was applied in the case of Bear Scotland v Fulton, in which the Employment Appeal Tribunal found that the Directive required regular overtime to be considered when calculating holiday pay.

 However, this doesn’t clear up:

  1. Whether there is still a requirement to include commission in the holiday pay calculations if a commission scheme is deliberately structured to considerate annual leave;
  1. What the correct reference period would be for an employer to calculate the commission accumulated by an employee during a week’s holiday

Our comment

The Tribunal has allocated further time to determine the correct commission reference period. We’ll keep you posted as to how this pans out. You may wish to wait and see what reference period the Tribunal says is appropriate before changing your policy on holiday pay. If not already doing so, you should consider auditing pay arrangements so as to assess the size and potential cost of the issue for your organisation.

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