Holiday Pay Update

The latest Court of Appeal judgment in the case of Lock v British Gas Trading Ltd has confirmed that employers will require to include result-based commission payments when calculating holiday pay.

In summary, Mr Lock was a salesman who received a basic salary with variable commission, which was paid in arrears. Mr Lock was unable to earn commission whilst on holiday, and therefore argued that he was economically disadvantaged as a result of taking annual leave. It was confirmed by the European Court of Justice (ECJ) in 2014 that holiday pay should be paid by reference to commission payments that the worker would have earned if at work.

The question for the Court of Appeal to determine was whether the UK holiday pay legislative provisions could be read in a way which was compatible with the ECJ ruling, which it did. However, unhelpfully no guidance was given by the Court of Appeal in relation to the method employers should utilise when calculating how commission payment should be reflected in holiday pay. This case will clearly have significant implications for member companies that utilise commission based structures in their operations.

British Gas has a further right of appeal to the Supreme Court, and therefore there may yet be another chapter to be written in this long running saga.

An appeal is also set to be heard by the EAT in December 2016 in respect of the Fulton v Bear Scotland litigation, which raises a challenge to the “three-month gap” rule. This “rule” significantly limits the prospect of large back pay claims being establishing by employees as these historic claims cannot succeed if there has been a gap of three months or more between holiday underpayments.

Any further legal updates on holiday pay will be reported in our members’ briefing and blog.