Court of Appeal confirms inclusion of commission in holiday pay in British Gas case


The Court of Appeal has confirmed that commission-based earnings should be included in holiday pay calculations in the case of British Gas v Lock.

Lock, previously a sales representative for British Gas, raised a complaint against the energy organisation for an alleged unlawful underpayment of his wages of £1,500 due to the fact that he could not earn commission while on annual leave. Lock argued that commission should be factored in to his holiday pay remuneration.

The Court of Appeal has upheld the Employment Appeal Tribunal’s decision that commission-based pay should be included in holiday pay. This applies to the first four weeks of holiday pay in line with the working time regulations, excluding the additional 1.6 weeks of annual leave that is in UK law only. The decision follows earlier rulings by the Employment Tribunal and the Court of Justice for the European Union (CJEU).

The Court of Appeal maintained that Lock is entitled to have his holiday pay calculated with reference to his normal remuneration. The judgement does not detail how holiday pay should be calculated or what the appropriate reference period for holiday pay calculations should be in other cases.

Julie Sharp, counsel in the employment team at Linklaters, said: “What employers [need] to do is try to determine for their own workforce what normal remuneration means. If someone’s going to be worse off in terms of general take-home pay by virtue of taking holiday than not, really that’s suggesting that those elements of pay should be calculated or brought into the calculation of holiday pay.”

British Gas has until 3 November to seek permission to appeal the Court of Appeal’s decision. Whether it chooses to do so could have fundamental implications for future employment law, said Simon Rice-Birchall, partner at Eversheds.

The process of leaving the EU could raise further questions around the issue of including commission in holiday pay, because compliance with the EU requirements and rulings currently supporting Lock’s case could become an unsteady foundation.