The eagerly-awaited Court of Appeal decision in British Gas v Lock has now been handed down. The hope for this decision was twofold:
- that it would clarify whether or not holiday pay should take into account commission that would have been earned but for the employee's holiday, or, put another way, that it would clarify whether the Working Time Regulations 1998 can be interpreted in a way that includes commission in holiday pay; and
- that it would set out how to actually calculate the amount of commission to be included in the holiday pay.
In answer to the first question the Court of Appeal reaffirmed what has already been known for the last two years: that, subject to certain conditions, commission is to be included in holiday pay. With regards to the second question, the court stated that "nothing in this judgment is intended to answer [it]". So the position we are now in is that holiday pay must include commission if the relevant conditions are met, but that the correct reference period for working out how much commission to pay is still unclear.
Given that British Gas has indicated that it has around 1,000 potential claims that have been awaiting this decision, and the cost implications that these would have on its business, there is a strong likelihood that British Gas will appeal this decision to the Supreme Court. However, now that the Court of Appeal has ruled on this issue, employers should, where relevant, ensure that commission is included in holiday pay – something that could have huge financial implications for employers with high numbers of staff working on commission. As to what reference period to use for calculating the commission to be paid, employers should, with reference to general practice in the industry within which they operate, look at their commission scheme and make a sensible decision. Commentators have suggested that 12 weeks could be an appropriate reference period, which could be a helpful starting point for employers.
Despite Brexit, employers will still have to comply with this decision as, until the UK leaves the EU, UK legislation has to be interpreted in line with both EU directives and decisions of the European Court of Justice.
It is worth noting, however, that the application of this decision is limited to workers (1) with normal working hours; (2) whose pay does not vary with the amount of work completed; and (3) whose results-based commission is part of their normal remuneration.
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