Appeal Will Add Greater Uncertainty For Businesses

The on-going issue of whether an employee’s commission payments should form part of their holiday pay calculations could be thrown into chaos following the latest decision by British Gas to appeal an earlier landmark employment tribunal ruling.

Last year the ECJ ruled that British Gas employee, Mr Lock, should, as a matter of EU law, have commission included in his holiday pay. He was paid a basic salary of £14,670 per year plus commission which was linked to his performance as an ‘energy trader’ (his job was to obtain new customers for British Gas, and persuade existing ones to upgrade their accounts).    

Mr Lock did receive the benefit of the commission he had already earned when he took annual leave, but he complained that he could not earn commission during his holiday which impacted on the salary he received in later months. 

He argued that his salary should have been enhanced to reflect the amount of commission he would have earned, otherwise this could deter workers like him from taking a holiday.

The ECJ agreed on the basis that the health and safety rationale underpinning the Working Time Directive requires that workers take a break from the demands and stresses of work. Workers, therefore, must not be discouraged from taking leave and the pay they receive whilst absent, must generally correspond to what they would have received had they been at work. 

In Mr Lock’s case, commission amounted to 60% of his earnings, and he could not earn commission whilst on holiday – a clear deterrent from taking time off.

The case then returned to the Employment Tribunal, where the question for determination was whether the Working Time Regulations could be interpreted so as to give effect to EU law.

The Tribunal found that UK legislation could be read so as to be consistent with the ECJ’s decision and it achieved this by adding new wording to the Regulations.  This meant that workers whose remuneration included commission or similar payments, should have their holiday pay calculated in the same way as workers whose pay varied according to how much work they actually do.  Commission will have to be included in the calculation.

It was anticipated that new dates would be listed to hear the substantive elements of Mr Lock’s claim i.e. what compensation should be paid by British Gas to ensure that workers like Mr Lock are not disadvantaged by taking a holiday. However, these issues will now be stayed, pending the outcome of British Gas’s appeal.

It is reported that British Gas is arguing that commission and non-guaranteed overtime are dealt with under different provisions, which use different language, and the Tribunal incorrectly concluded that the EAT’s decision in Bear Scotland, a case that examined non-compulsory overtime, had any bearing on the case of Lock.

British Gas also argue that the EAT in Bear Scotland incorrectly concluded that our domestic legislation could be interpreted purposively to give effect to EU law.

Expert Opinion

“It is impossible to say at this stage whether British Gas will be successful. However, the arguments it appears to be raising, were examined by the EAT in Bear Scotland and rejected. It is difficult to see the EAT reaching a different conclusion simply on the basis that there is a difference in principle between payment for non-guaranteed overtime and payment in respect of commission to determine how much a worker is entitled to receive when taking annual leave.

“That said, the EAT did give the parties in Bear Scotland the right to appeal, but this was not exercised, so the issue may have to be determined by a higher court before businesses know where they are.

“The appeal is likely to be heard by the end of this year. We expect that the EAT, whatever decision is reached, will allow the parties to appeal to the Court of Appeal, which may mean that the law will remain in a state of confusion for some time.

“Tribunals are likely to be asked to stay any cases which hinge on similar arguments, which will leave businesses and claimants in a hiatus.”
Glenn Hayes - Partner & National Head of Employment Law