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Latest ruling on holiday pay and commission

24 February 2016

The Employment Appeal Tribunal (“EAT”) has confirmed that UK law can and should be interpreted to give effect to the decision of the European Court of Justice (“ECJ”) that results-based commission must be taken into account when calculating workers’ holiday pay (British Gas Trading v Lock).

What was this case about and what was decided?

This case has a long history on which we have been reporting over the past few years. In November 2012, an employment tribunal referred Mr Lock’s case to the ECJ to determine whether the EU Working Time Directive (“WTD”) requires results-based commission to be included in the calculation of statutory holiday pay. In May 2014, the ECJ confirmed that it does.

The case then went back to the tribunal, which had to consider whether the Working Time Regulations 1998 (“the Regulations” - the UK law implementing the WTD) were capable of being interpreted in line with the ECJ’s decision. The tribunal’s conclusion, in March 2015, was that they could be and it implied words into the Regulations to that effect. In so deciding, the tribunal followed the EAT’s decision in Bear Scotland Ltd v Fulton which, in similar circumstances, found that the Regulations should be interpreted so as to include non-guaranteed overtime in the calculation of holiday pay.

British Gas appealed to the EAT against the tribunal’s decision in Mr Lock’s case, the main thrust of its argument being that the judgment in Bear Scotland was wrong. Naturally, Mr Lock disagreed. So too did the Department for Business, Innovation and Skills, which is also a party to the proceedings. This may seem surprising, but the case is of significant concern for the Government. A finding against Mr Lock on this point could expose it to direct claims of damages on the basis that it failed properly to implement EU law.

British Gas pursued three main arguments:

  • The decision in Bear Scotland could be distinguished from Mr Lock’s case.
  • Bear Scotland was wrongly decided, because the EAT is still bound by the Court of Appeal’s 2004 decision in Bamsey v Albon Engineering. (In that case, the Court of Appeal ruled that the Regulations did not need to be interpreted in line with the WTD so as to include overtime in the calculation of holiday pay. However, this was before the ECJ’s more recent decisions confirming the WTD requires holiday pay to equate to “normal remuneration”.)
  • In any event, EAT is not legally bound to follow its previous judgments so it would be entitled to depart from the approach in Bear Scotland.

Rejecting these submissions, the EAT said that it would be inappropriate for it to reconsider the merits of the substantive arguments when they had been considered recently and at length by the (then) President of the EAT in Bear Scotland.

What happens next?

There may yet be a further appeal by British Gas to the Court of Appeal. This must be made within 42 days of the EAT’s judgment being sent to the parties.

If there is no appeal, the case will go back to the employment tribunal to progress to a full merits hearing. There remain other outstanding questions for the tribunal to consider, including the correct reference period for calculating Mr Lock’s holiday pay, and whether British Gas’s scheme operates so as to effectively compensate for periods of annual leave so that no further money is due. One point that is clear from other cases - and has already been accepted by the tribunal - is that only the four weeks of paid annual leave entitlement deriving from the WTD will be affected by the result.

A large number of commission cases have apparently been stayed pending the outcome of this case. In the event there is no further appeal, these cases will proceed to hearing. The EAT referred to 60 similar claims against British Gas in the East Midlands region alone, 918 claimants against the company across the country and thousands of similar claims more generally.

Given the potential appeal and the questions yet to be considered by the tribunal, most employers are likely to maintain a “wait and see” approach to commission-based holiday pay.

Anna Sella's video comment is available here

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Latest decision on holiday pay - regular voluntary overtime payments to be included

07 August 2017

The EAT has clarified that regular voluntary overtime payments form part of “normal remuneration” and should be included in the calculation of holiday pay for the purposes of the four weeks’ minimum annual leave entitlement required by EU law.

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