Holiday Pay and Commission: Court of Appeal judgement in Lock v British Gas
In the case of Lock v British Gas the Court of Appeal has upheld the previous decisions of the Employment Appeal Tribunal and the Leicester Employment Tribunal that commission payments should be taken into account when calculating holiday pay.
The case involves Mr Lock, a salesperson for British Gas, whose remuneration package included a basic salary plus commission. When he took holiday, he would only receive basic pay, because he had been unable to generate sales for the periods that he was on holiday. He argued that he was deterred from taking holiday because of the financial loss during the months that followed the holiday periods. Mr Lock successfully argued that holiday pay should reflect the income that a worker would normally receive, including commission, had he or she been working.
The matter was referred to the European Court of Justice (ECJ) to clarify whether commission was a regular or normal part of a worker’s pay. The ECJ concluded that because commission is directly linked to an individual’s work, it should be taken into account when calculating holiday pay.
British Gas appealed the tribunal’s decision to the EAT, where it was subsequently dismissed. Inevitably, and because of the costly consequences that would follow, British Gas was given leave to appeal to the Court of Appeal.
The Court of Appeal has today dismissed the appeal and upheld the previous decision; that future holiday payments should be enhanced to reflect the commission that a worker would otherwise have earned during his or her annual leave.
What does this mean for businesses?
As this case has been ongoing for some time many employers have done their due diligence and considered how holiday pay will be structured moving forwards. In addition, many have considered negotiating agreements with the workforce, in order to reduce the risk of floods of claims.
Despite the reality of the potential for an appeal, now is the opportune time for employers to put measures in place.
It is important that if you are an employer that regularly pays commission payments and you have not already done so, we recommend that you review your current practices in order to alleviate the risk of claims. Opening lines of communication with the workforce is essential.
The matter will now be remitted to the tribunal for a decision on the reference period that employers must use for calculation purposes. Guidance from the Government on timescales and implementation is needed and will help set vital parameters for businesses and ensure they comply with best practice.
For more information on the issues raised above or any other employment related matter, please contact a member of the Employment Team.