EAT Rules on Holiday Pay and Unearned Commission

The Employment Appeal Tribunal (EAT) has handed down its judgment in Lock v British Gas Trading Limited and Others, upholding the decision of the Employment Tribunal (ET) that domestic legislation can be interpreted so as to conform with EU law in respect of holiday pay.

Mr Lock's normal pay included a commission based on sales in the previous month, and this represented on average more than 60 per cent of his remuneration. As he could not achieve sales whilst on annual holiday, this meant that his pay for the month following was lower than usual. He brought an ET claim for unlawful deduction from wages.

The ET sought guidance on the matter from the Court of Justice of the European Union (CJEU), which concluded that Mr Lock's holiday pay should include commission. Any reduction in a worker's remuneration in respect of his paid annual leave that would be liable to deter him from actually exercising his right to take that leave is contrary to the objective pursued by Article 7 of the EU Working Time Directive (WTD).

As regards how the commission-based element of holiday pay should be calculated, the CJEU considered this must be assessed by the national court or tribunal on the basis of the rules and criteria set out by the case law of the CJEU and taking into account the objective pursued by Article 7 of the WTD.

In the light of the CJEU's ruling, the ET examined whether domestic law, in the form of the Working Time Regulations 1998 (WTR), can be read consistently with the WTD or whether it was necessary to insert words in order to achieve compliance with the WTD. The ET found that it was necessary to incorporate additional words into Section 16 of the WTR so that for the four weeks' minimum holiday period required by the WTD, 'a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done' for the purposes of Section 221 of the Employment Rights Act 1996 (ERA). This would mean that a week's holiday pay should be calculated based on the number of normal working hours in a week at the average hourly rate of pay over the twelve-week period preceding the worker's holiday.

The ET expressed confidence that its decision was in line with the underlying intention of Parliament to accurately transcribe the WTD into UK law.

In the ET's view, there was no difference in principle between payment for non-guaranteed overtime (Bear Scotland Limited v Fulton) and payment in respect of commission so far as holiday pay was concerned, and implying fresh words into the WTR did not go against the grain or the underlying thrust of the domestic legislation.

British Gas appealed against the ET's ruling on the following grounds:

  • The ET was wrong to conclude that the decision of the EAT in Bear Scotland v Fulton had any bearing on the decision in Lock; and
  • The EAT had in any case erred in Bear Scotland in concluding that domestic law could be interpreted purposively in order to give effect to EU law.

The EAT dismissed the appeal. Despite the submissions made by British Gas, in the EAT's view, the decision in Bear Scotland was not manifestly wrong and there were no exceptional circumstances such as to justify a departure from that decision in this case. If it were wrongly decided, it must be for the Court of Appeal to say so.

This ruling affirms the position that holiday pay of just basic salary on its own is not sufficient if this is not the worker's normal remuneration, which has been defined as remuneration that is 'linked intrinsically to the performance of the tasks which the worker is contractually required to carry out under his contract of employment and in respect of which a monetary amount is provided' (British Airways plc v Williams).


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