Working Time Regulations 1998 can be interpreted to include commission in holiday pay

February 12, 2016, By

The recent ruling in the case of British Gas Trading Ltd v Mr J Z Lock & Secretary of State for Business, Innovation and Skills has concluded that the Working Time Regulations 1998 can be interpreted in line with the EU Working Time Directive so as to include commission payments in the calculation of holiday pay in respect of the four weeks’ annual leave entitlement.

By way of background, Mr Lock was a salesman for British Gas. Mr Lock had normal working hours and his remuneration package included a basic salary, plus results-based commission that did not depend on how much work he did, but on the number and type of contracts he persuaded customers to enter into. This commission formed an important part of his remuneration package and accounted for around 60% of his pay. When Mr Lock took annual leave, the remuneration paid to him during his holidays consisted only of his basic salary and no commission. Mr Lock complained to the Leicester employment tribunal that he had suffered an unlawful deduction from wages as the method of calculating his holiday pay was contrary to the requirements of section 221 of the Employment Rights Act 1996 and regulation 16 of the Working Time Regulations 1998. His argument was based on the fundamental principle that normal remuneration must be payable in respect of his period of annual leave

Mr Lock claimed that domestic legislation could be, and thus should be, interpreted in a way that conformed to the requirements of Article 7 of the European Union’s Working Time Directive.  The employment tribunal agreed with Mr Lock and concluded that it was possible to interpret the domestic legislation in a way that conforms to the requirements of the Working Time Directive. This subsequently meant that Mr Lock’s results-based commission should be included in his holiday pay calculations to ensure that his pay during periods of annual leave matched his normal remuneration. British Gas then appealed the decision.

The Employment Appeal Tribunal (EAT) dismissed the appeal and found that that domestic legislation could be interpreted in a way that conforms to the requirements of Article 7 of the Working Time Directive. The EAT subsequently upheld the recent similar decision of Bear Scotland & Others v Fulton & Others [2015] (regarding guaranteed overtime) and saw no reason to depart from it. Lucy Lindstrom, head of employment law at British Gas, has since said: “We note the decision of the Employment Appeal Tribunal. We have requested permission to appeal to the Court of Appeal so that there can be a definitive ruling on this issue”.

This decision means that the amount employees are paid for their holidays should now be based on their basic pay and the commission that they usually earn. The ruling will have implications for those who normally receive commission and are paid less than their normal income during periods of annual leave.

If you or your business need further advice or guidance on this topic then please do not hesitate to contact us on 0161 672 1425