Kate Hodgkiss, a Partner in our Edinburgh office comments: The employment tribunal has handed down its decision in Lock v British Gas, one of the on-going holiday pay cases, this one concerning commission. Unfortunately the decision does not answer many of the remaining questions following the EAT’s decision in Bear Scotland (see Be Aware 4 November 2014) although it does confirm that commission must be included in the calculation of holiday pay.
The brief facts in Lock are that Mr Lock was employed by British Gas as a salesman, earning a basic salary of under £15,000 but with substantial potential for commission (up to 60% of his overall remuneration). During periods when he took annual leave, he was paid basic salary plus commission earned in previous weeks; on return from holiday, however, his remuneration would be lower as he had not had the opportunity to earn commission whilst absent on leave. He brought a claim for unlawful deductions from wages.
On a reference from the tribunal, the ECJ held that a worker should have commission included in holiday pay. The live issues in Lock were therefore:
- To determine the effect of the ECJ ruling and in particular whether the Working Time Regulations (WTR) are capable of being read to give effect to it;
- If so, whether the relevant commission scheme operate sin such a way that it effectively compensates for periods of annual leave so that even if the scheme is unlawful no money is due to the claimants;
- What is the correct reference period for calculation of holiday pay due;
- Whether the principles in the ECJ ruling apply only to the four weeks’ Working Time Directive (WTD) leave or also to the additional 1.6 weeks’ leave granted under the WTR; and
- How much the claim is worth.
However, the tribunal went on to deal with only issue one in any detail. In respect of issue four, it was agreed that the decision is relevant only to the four weeks’ WTD leave.
In respect of issue one, the tribunal regarded itself as bound by the reasoning of the EAT in Bear Scotland, but held in the alternative that that it agreed with the reasoning of the EAT in any event. The EAT said that Regulations 16(2) and 16(3) of the WTR should be applied with the inclusion of the words in italics below:
16(2) Sections 221 to 224 of [the Employment Rights Act 1996] shall apply for the purposes of determining the amount of a week’s pay…subject to the modifications set out in paragraph (3).
16(3) The provisions referred to in paragraph (2) shall apply-
(e) as if, in the case of the entitlement under Regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.
Section 221 ERA provides that where remuneration varies with the amount of work done, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable in respect of the period of the previous 12 weeks. Presumably the average hourly rate for these purposes includes both basic salary and commission. The effect of the wording read into the WTR is to implement a 12 week reference period; however, it is not entirely clear whether this is settled as the tribunal had said that this issue was to be determined at a later date. It is also not clear precisely how the reference period will work, as commission paid in the 12 weeks before the calculation date will not be paid entirely in respect of hours worked during those 12 weeks; it may be necessary to average the pay over a different period. None of the holiday pay decisions so far have satisfactorily determined precisely how holiday pay should be calculated. There will need to be a further tribunal hearing in Lock to determine how much the claim is worth, which may provide some practical guidance.