Holiday Commission Payments – The Verdict

Finally we have the decision about the calculation of commission payments.

This well publicised case was brought by Mr Lock, an employee of British Gas. He was paid a basic salary and commission based on the sales he made which represented, on average, over 60% of his take home pay.

British Gas paid holiday pay to Mr Lock based on his basic salary only, plus commission on sales he had earned prior to the holiday period. This resulted, in the weeks and months after the period of leave, in times when Mr Lock only received basic salary and not commission. This was because Mr Lock was not at work during the period of leave, did not make sales and did not generate any commission.

Mr Lock brought a claim against British Gas contending that his holiday pay should be based on basic salary and average commission.

The employment tribunal asked the European Court of Justice (ECJ) whether employers should include commission when calculating holiday pay and both decided that Mr Lock should be paid holiday pay including overtime. Since the ECJ we have been awaiting for the employment tribunal to see how to give effect to the ECJ decision.

At the hearing Leicester employment tribunal made it clear that the case was not about whether the commission received by Mr Lock should be included because the ECJ had already decided that it should. The case was about whether the Working Time Regulations could be interpreted to give effect to the ECJ decision.

The employment tribunal concluded that it could by adding wording to the Working Time Regulations which requires employers with workers who have normal working hours but who receive commission or similar payments to calculate holiday pay as if their pay varied with the amount of work done. The effect is to require employers to calculate holiday pay based on an average of the previous 12 weeks’ pay.

The Next Steps

Not all commission payments will qualify and have to be taken into account. You should reconsider how you calculate holiday pay if you operate a similar commission scheme, as you may face a claim for back pay. Legislation was introduced to limit the impact of such claims by restricting back pay for two years for cases on or after 1 July 2015.

This decision relates only to the calculation of four week’s holiday and not the entire current statutory minimum of 5.6 weeks or any enhanced holiday. You should also check any contractual provisions. If you need any help calculating holiday pay for your employees, call us on 0118 940 3032 or click here to email us.

Holiday Pay – Is There a New Way to Calculate it?

It was recently reported in the press that certain trade unions are encouraging their members to launch claims against their employers in respect of payments they may be owed as a result of the recent case of Lock v British Gas Trading Ltd. In that case, the European Court of Justice ruled that commission had to be taken into account when calculating holiday pay, rather than just basic pay.

As most UK employers only pay basic salary for holidays, the potential impact of the ECJ’s decision, and other similar cases that have been brought since, is substantial, and could include unlawful deductions claims stretching back a significant number of years.

It appears that two of the country’s biggest unions are taking steps to actively promote claims from their members. Meanwhile, employers groups are pressing the Government to introduce emergency legislation that will limit the impact of the rulings which are at odds with current UK law. Employers have warned that unless such measures are taken, the resultant legal costs could seriously threaten economic recovery.

The two main options open to employers remain unchanged. You can either:

1. Take steps to mitigate past liabilities and reduce future liabilities by introducing changes to holiday pay so that it includes all elements of normal pay (e.g. overtime and commission). The legal argument here would then be that this “breaks” the series of any unlawful deductions which an ET deems to have been made, meaning that employees have only three months from the date of the change to bring a claim (i.e. the clock would start ticking for employees). However, the success of this strategy is not guaranteed. Tribunals may determine that it was not reasonably practicable to bring a claim in time if the legal position was uncertain.

2. Wait for the outcome of the aforementioned EAT cases, and Employers’ appeals for emergency legislation to limit the impact of the rulings to date.

Whichever route you choose to take, it is advisable in the first instance to review your existing methods of calculating holiday pay and assess potential liability. It may also be worth considering establishing a fund in this regard wherever possible.