Court of Appeal on Holiday Pay

14 October 2016

You may feel as though you have received many updates on holiday pay and the case of British Gas v Lock. Whilst the messages coming out of the (UK and European) courts have been consistent – that contractual results-based commission should be included as part of holiday pay – the most recent decision (that of the Court of Appeal) is still significant.

The Court of Appeal agreed with the Employment Appeal Tribunal that the Working Time Regulations 1998 (SI 1998/1833 – WTR) can be construed in accordance with European case law which has interpreted the Working Time Directive (WTD) since the UK legislation was enacted.

As a reminder: The case of Lock v British Gas Trading Ltd had been heard at the Leicester Employment Tribunal who referred a question to the CJEU (formerly ECJ) on the calculation of holiday pay.

The CJEU determined that holiday pay must be based on “normal remuneration”. In this case it meant that the contractual results-based commission Mr Lock received as a British Gas salesman should be included in calculating his holiday pay.

When Mr Lock took holiday he received basic salary and the commission he had earned prior to his holiday; his earnings after holidays were lower as a result of the commission he missed out on during his annual leave. The CJEU determined that he should not lose out by taking holiday.

After the CJEU’s decision, the Employment Tribunal found in Mr Lock’s favour. British Gas appealed to the EAT and then the Court of Appeal; they found in Mr Lock’s favour. It is expected that British Gas will now appeal to the Supreme Court.

It is important to remember that all of these decisions relate to holiday pay for the four week entitlement that stems from Reg. 13 of the WTD and not the additional 1.6 weeks’ that make up the remainder of the 5.6 week UK statutory minimum.

The Court of Appeal found that as the WTR were enacted to bring in to force the European WTD, the subsequent European case law interpreting the Directive should be reflected in UK law and the WTR. The Court of Appeal pointed out that in the case of most workers, the WTR provide for “normal remuneration” (including earnt commission) during annual leave already. There were only two anomalous exceptions to that: (i) workers with non-guaranteed overtime; and (ii) workers to which section 221(2) of the Employment Rights Act 1996 applies and whose commission is not taken into account in the calculation of a week’s pay.

The Court of Appeal declined to give further guidance on the practical calculation of holiday pay in specific circumstances (such as a banker receiving an annual bonus in the summer and how that may impact on holiday pay if at all). It is hoped that any future Supreme Court judgment on this case would offer that practical guidance.

If you are wondering if Brexit is likely to limit the impact of this recent decision (given the interraction with EU law), then bear in mind that the government intervened in this case in favour of Mr Lock.

If you would like to speak with someone in our team about these issues and whether you should now implement a change to how you pay holiday pay – please contact us.