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Holiday pay and commission – an update


A long-running case relating to holiday pay and commission has finally come to an end in the Supreme Court.


What happened?


Mr Lock was a salesman, working for British Gas. On top of his basic pay, he was paid a monthly commission, the amount of which could vary depending on his sales figures. On average, it made up about 60% of his take-home pay.


His argument was that because the holiday pay system operated by British Gas didn’t take into account the commission he would have earned, but only his basic pay, his pay was lower in the salary run that immediately followed his annual leave. Because of this, he claimed that British Gas owed him money, and he took his case to an Employment Tribunal.


A concern over a conflict with European law meant that the case went to the European Court of Justice for clarification. The court decided that Mr Lock’s commission should be included in his holiday pay.


When the case came back to the Employment Tribunal, they decided that the Working Time Regulations 1998 could be interpreted to give effect to the European Court of Justice’s decision.


This decision was backed up by an Employment Appeal Tribunal.  Unsurprisingly, British Gas appealed the decision.


Court of Appeal


The Court of Appeal dismissed British Gas’ appeal and agreed with the Tribunals and the European Court of Justice that the correct interpretation of the Working Time Regulations was that Mr Lock should receive commission in his holiday pay.

Still not satisfied, British Gas wanted to appeal against the decision but the Supreme Court did not allow the appeal to proceed.


Implications


The latest decision means that British Gas’ appeal is finally over. The case is being sent back to the Employment Tribunal to work out how much holiday pay Mr Lock should receive.


Provided that British Gas does not come to an out-of-court settlement with Mr Lock before the Tribunal hearing, guidance may be forthcoming on how exactly employers should administer and calculate holiday pay in instances where the employee receives commission as part of their take-home salary.


It’s worth noting, given recent political developments, that the case revolves around European law and therefore, depending on how Brexit works out, things could change further.


However, the court judgment applies at this time and until the UK completes the process of withdrawal from the EU, UK legislation will be subject to interpretation based on European Court of Justice decisions.


What now?


The decision of the Court of Appeal means that employers now have clarification regarding commission payments along the lines of those made to Mr Lock.


Employers should calculate holiday pay with reference to the twelve-week average reference period. This means amending all calculations for holiday pay to take the twelve-week reference into account if this has not already been done.


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