INSIGHT: Commission, Holiday Pay and Employment Law

The Court of Appeal has handed down its decision in British Gas v Lock - an important case on the calculation of holiday pay.

Mr Lock was a salesman on a basic salary with variable commission paid in arrears. Mr Lock's commission depended not on the time worked, but the outcome of that work, i.e. sales achieved. Mr Lock could not earn commission whilst on leave, and therefore would lose income by taking it. He brought a claim for his 'lost' holiday pay after taking leave in December 2011 to January 2012.

In 2014, the European Court of Justice held that, when calculating holiday pay, Member States must ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work.  But the ECJ left the mechanics of working out 'how much should that be?' to the member states.

The recent decision is very technical. The issue for the Court of Appeal was whether the UK Working Time Regulations 1998 can be interpreted as including holiday pay in respect of commission, as the wording of the Employment Rights Act 1996 suggests not.  And that's right - the natural wording of the legislation says it can't.

But the Court of Appeal (as with the EAT and employment tribunal before it) got around that problem by adding a new subsection to the Working Time Regulations 1998, under the guise of statutory interpretation.

Conclusion - when calculating holiday pay, workers are entitled to be paid an amount which reflects the commission they would have earned if not on holiday.

Mr Lock is entitled to have his holiday pay calculated by reference to his normal remuneration (which therefore included commission).  To achieve this, additional words needed to be written into the WTR, which is what the Employment Tribunal had done.

The Court declined to speculate as to the position of other workers – for example, the banker who receives a results-based annual bonus, or the worker who receives commission only when a particular level of turnover or profit is achieved.

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