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Court of Appeal confirms that holiday pay should include commission

BY Donald MacKinnon
Employment Law & HR
BG Purple

Most will be aware of the changing tide created by various holiday pay cases over the past few years. That tide has continued to shift as cases have made their way through the appeal courts, each decision bringing us greater certainty than the last.

The Court of Appeal has now made its decision in British Gas v Lock, one of the original holiday pay cases involving the question of whether holiday pay should include earnings from commission.

Mr Lock was a salesman for British Gas who made his income from achieving sales and earning commission. However, when on leave he would be paid only his basic salary and not for the commission he would have earned in that time. Taking leave therefore meant that Mr Lock would lose up to 40% of his normal income. He brought a claim against his employers for lost holiday pay when he took leave in December 2011 to January 2012.

The Court of Appeal have sided with the EAT, and the Employment tribunal before it, to interpret the Working Time Regulations in a way that allows holiday pay to be calculated based on both normal pay, and any commission that would have been earnt.

Who will be affected?

The decision is to apply to employees who receive regular results-based payments on top of their basic salaries and who work normal working hours. It is not intended to apply to staff who may receive an annual bonus based on team or organisational performance.

Does the judgment affect all holidays?

It only applies to holidays granted by EU law as it stems from the Working Time Directive. EU law requires an employer to give their employees a minimum of 4 weeks holiday pay. The extra 1.6 weeks that UK employees are entitled does not therefore need to be calculated to include commission.

How should this be calculated?

The Court of Appeal chose not to comment on this and so the issue of how holiday pay should be calculated remains at the discretion of employers. Although it is often the case that a 12 week average will be used, it will likely depend on the commission scheme in place.

What now?

It is expected that British Gas will appeal the decision again to the Supreme Court in light of the number of potential claims against it on this issue. In the meantime, if you have concerns about your holiday pay claim liability, contact your Employment Solicitor for advice our experienced HR Projects team can also provide welcome help by assisting you to calculate liability for historic underpayments.

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