Neil Emery: EAT rules holiday pay calculations should include commission

Neil Emery 430

In the case of Lock v British Gas Trading, the Employment Appeal Tribunal (EAT) has confirmed that an employee’s holiday pay should include an element in respect of commission.

Lock was an energy trader for British Gas Trading, earning commission on the sales he generated, equating to around 60% of his basic pay. When he took holiday, he received basic pay and commission from sales made before his holiday. In subsequent months, his commission payments were lower because he made no sales while on holiday.

Lock brought an employment tribunal claim, arguing that he had suffered an unlawful deduction from wages relating to a period of annual leave. In the earlier case of British Airways v Williams and others, the European Court of Justice (ECJ) held that holiday pay should reflect the income workers would usually receive, had they been working. Lock argued that future pay should be enhanced to reflect commission he would have earned, had he not been on holiday.

The tribunal referred the case to the ECJ, whose preliminary ruling was that commission must be included when calculating four weeks’ holiday pay under the EU Working Time Directive (incorporated into UK law by regulation 13 Working Time Regulations 1998). The case went back to the tribunal, which upheld Lock’s claim and said that the Working Time Regulations should be interpreted to include commission payments for these four weeks’ annual leave. British Gas appealed, but were unsuccessful.

Under regulation 13A of the Working Time Regulations, workers are entitled to an additional 1.6 weeks’ holiday (more than under the EU Working Time Directive), but it does not appear that the obligation to include commission in holiday pay currently extends to these days. Nevertheless, employers will now have to take commission into account when calculating employees’ holiday pay.

Neil Emery is associate solicitor at Cavendish Employment Law