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Holiday pay calculation must include results-based commission forming part of normal remuneration

British Gas appealed, and the EAT, and now the Court of Appeal (CA), held that the ET were correct to interpret the WTR as it did. According to the CA, the “grain or thrust” of the WTR is directed at providing holiday pay in compliance with the WTD criteria.

In British Gas Trading v Lock, Lock (L) received a basic salary. In addition, L had a contractual entitlement to results-based commission pay, representing, on average, 60% of his remuneration. L complained to an ET that his commission payment had not been included in his holiday pay calculation. The ET asked the ECJ whether in L’s case the Working Time Directive (WTD) allowed for holiday pay just to consist of basic pay. The ECJ ruled that it could not. Workers must have their holiday pay calculated on the basis of their normal remuneration. L’s normal remuneration consisted of basic salary and results-based commission pay and those two elements had to form the basis for his holiday pay calculation. The ECJ added that the calculation of holiday pay in such circumstances requires a specific analysis and it is up to the national court to work out the commission element entitlement.

When the case returned to the ET, it accepted that the language of the Working Time Regulations 1998 (WTR) and the provisions of the Employment Rights Act 1996 it incorporates, cannot be read in a way to conform with the WTD without reading words into it, to the effect that: the holiday pay entitlement of a worker with normal working hours whose remuneration includes commission or similar payment must be based on remuneration which varies with the amount of work done. Furthermore, the calculation of the average hourly rate of remuneration in such cases should be based on the twelve weeks preceding the calculation date.

British Gas appealed, and the EAT, and now the Court of Appeal (CA), held that the ET were correct to interpret the WTR as it did. According to the CA, the “grain or thrust” of the WTR is directed at providing holiday pay in compliance with the WTD criteria. This means that the WTR should be interpreted in a way that provides L with a holiday pay calculation based on his normal remuneration, which in turn requires his commission earnings to be taken into account. Interpreting the WTR accordingly does of course require reading in additional wording but this does not amount to repealing or amending legislation, but rather the court performing its duty to interpret legislation to comply with a Directive.

The CA, however, went on to make three points:

  1. The judgment is confined just to L’s case [and therefore his specific circumstances].
  2. There is nothing in the judgment that is intended to answer how different types of cases should be treated, for example, a salaried banker who receives a single, large results-based annual bonus.
  3. The wording read into the WTR by the ET was expressed too widely insofar as it refers to all types of commission, and not just to contractual ‘results-based commission’ as in L’s case; therefore, the CA would ‘favour’ an appropriate amendment clearly confined to L’s case.

The net result is that in circumstances which are not like-for-like with L’s case, a lot of questions have been left unanswered when calculating statutory holiday pay where commission/bonus payments form part of a worker’s ‘normal remuneration’. Employers are strongly advised to seek legal advice in such circumstances, particularly as British Gas has applied for permission to appeal the decision at the Supreme Court.

Content Note

The aim is to provide summary information and comment on the subject areas covered. In particular, where employment tribunal and appellate court cases are reported, the information does not set out full details of all the facts, the legal arguments presented by the parties and the judgments made in every aspect of the case. Click on the links provided to access full details. If no link is provided contact us for further information. Employment law is subject to constant change either by statute or by interpretation by the courts. While every care has been taken in compiling this information, SM&B cannot be held responsible for any errors or omissions. Specialist legal advice must be taken on any legal issues that may arise before embarking upon any formal course of action.

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