The Court of Appeal has now made a decision in the Lock V British Gas case. This is an important ruling regarding the calculation of holiday pay and whether or not commission should be included in annual leave payments.
The case is in relation to the level of pay in respect of annual leave required under Article 7 of the Working Time Directive and, in particular, commission payments.
Mr Lock was employed by British Gas as an Internal Energy Sales Consultant.
At the employment tribunal he claimed his holiday pay did not reflect what he would have earned from his results based commission and therefore British Gas owed him money.
Mr Lock received a basic monthly salary and was paid commission each month which fluctuated based on the sales he had made.
The tribunal considered and sought clarification from European Court of Justice (ECJ) on whether or not it was breaching the Working Time Directive for the working Time Regulations 1998 to limit the calculation of a week’s pay for annual leave to basic pay and exclude commission.
It was ruled that commission was part of Mr Lock’s normal remuneration as it is intrinsically linked with tasks he was required to carry out under his contract.
As a result it was concluded that this should be included in the calculation of the total remuneration for the purposes of calculating the amount that he is entitled to be paid during his annual leave.
The ECJ concluded that the failure of British Gas to pay Mr Lock his “normal remuneration” including commission for his annual leave is contrary of article 7 of the Working Time Directive.
This is because there was a risk that it could deter him from taking annual leave entitlement and suffer a financial detriment.
What does this mean?
Employers should take account of this ruling when calculating holiday payments.
However there is no legal guidance from the courts on how the calculations should be made.
Employers should also consider that not all commission payments will qualify to be included in holiday pay. This decision only relates to four weeks of holiday pay and not the statutory minimum of 5.6 weeks.
It would be recommended that employers are clear about whether this ruling applies to their commission scheme they are operating.
If the ruling does apply we recommend you look at options to review holiday pay arrangements to reduce the risk of any possible claims.