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Results-Based Commission Should Have Been Included in the Calculation of Holiday Pay

The recent Court of Appeal judgement in Lock v British Gas on holiday pay calculation follows where Bear Scotland v Fulton left off. In Bear, it was decided that an employer should include overtime in their holiday pay calculations. In Lock, British Gas tried to argue that it would be wrong to add to the wording of the Working Time Regulations 1998 (WTR) in order to conform with current European Court of Justice jurisprudence of the EU Working Time Directive. 

The Employment Appeal Tribunal did not accept that and ruled that the WTR can be interpreted to require the employer to include results-based commission in the calculation of holiday pay. In practice, a “week’s pay” was to be calculated not under the Employment Rights Act s221(2) but by taking an average of the worker’s remuneration over a 12-week period, including any commission.

British Gas appealed to the Court of Appeal, arguing that it had not been open to the tribunal to amend the WTR under the guise of interpretation, and that its interpretation was precluded by domestic authorities.

Last week the Court of Appeal upheld the Employment Appeal Tribunal's decision that the WTR should be interpreted in accordance with the requirements of EU law to include a representative element of results-based commission in the four weeks' of statutory holiday pay derived from Article 7 of the Working Time Directive. 

However, the court expressly opted out of addressing the question of the appropriate reference period to calculate the commission element of statutory holiday pay. It is understood that British Gas intends to apply for leave to appeal to the Supreme Court. It is hoped that the Supreme Court will take the opportunity to provide greater clarity for employers on this issue.  

 

This bulletin is for general guidance purposes only and should not be used for any other purpose.

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