UK law can be interpreted to include commission in holiday pay


4 mins

Posted on 22 Feb 2016

Workers who earn results-based commission are able to enforce their right to have commission included in their holiday pay. 

Speedread

Workers have the right to have an amount included in their holiday pay to reflect commission they have been unable to earn due to being on holiday.  The Employment Appeal Tribunal has ruled that UK legislation can be interpreted so as to give effect to this right.  Workers can therefore bring an employment tribunal claim to enforce their right. Claims that have been stayed pending the EAT’s decision will now proceed to a hearing. The Lock case will now return to the Employment Tribunal who will decide how Mr Lock’s holiday pay should be calculated. Employers will be particularly interested to see what reference period the employment tribunal uses for the calculation. 

Background facts

In Lock v British Gas, Mr Lock received a basic salary plus commission on sales he achieved. Commission made up approximately 60% of his remuneration and was paid several weeks or months after the sale was concluded. When he went on holiday he was paid his basic salary, together with any commission that fell due for payment during that period. However, his income dropped following his return from holiday as he had not made any sales whilst on holiday. He brought a tribunal claim, seeking an additional amount in his holiday pay to reflect the commission he had been unable to earn whilst on holiday. 

In May 2014, the ECJ ruled that employers must include in statutory holiday pay calculations an amount reflecting commission a worker would have earned had they not been on holiday. This is required by the Working Time Directive which requires that workers receive their normal remuneration whilst on holiday. 

However, on the face of it, the UK legislation does not provide for commission to be included in holiday pay calculations, meaning that workers have struggled to enforce their rights. A number of claims have been stayed pending today’s ruling.

The decision

The issue for the Employment Appeal Tribunal was whether it is possible to interpret UK legislation in order to give effect to the Working Time Directive and the obligation to include commission in holiday pay calculations. 

In March 2015, the Employment Tribunal ruled that this is possible. It ruled that employees with normal working hours whose remuneration includes commission should be deemed to have remuneration which varies with the amount of work done (despite the fact that in reality their remuneration varies based on the results of their work, rather than with the amount of work done during their normal working hours). This means that their holiday pay must be calculated by reference to their average pay and commission over a reference period preceding their holiday. 

The EAT rejected the employer’s appeal and agreed with the employment tribunal that it is possible to interpret the UK legislation in order to give effect to the entitlement to have commission included in holiday pay calculations. 

Implications

Workers will be able to bring employment tribunal claims to enforce their right to have an amount included in their holiday pay to reflect commission they have been unable to earn due to being on holiday. Claims that have been stayed pending the EAT’s decision will now proceed to a hearing (subject to any appeal to the Court of Appeal in the Lock case). 

This case will now return to the Employment Tribunal who will decide how Mr Lock’s holiday pay should be calculated. Employers will be particularly interested to see what reference period the Employment Tribunal uses for the calculation. The Working Time Regulations 1998 use the 12 week period before the holiday is taken. However, there remains some doubt over whether a 12 week period is sufficiently representative to comply with EU law, or whether a longer period needs to be used.

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