Landmark Ruling Means Employers Will Have to Pay Commission as Part of Holiday Pay

The Employment Appeal Tribunal has ruled in favour of a salesman who received only his basic pay on holiday, even though he received most of his money from commission.

The judgment in the case of British Gas v Lock secures the original ruling, first brought to the tribunal in 2012, that holiday pay must take account of people who earn both commission and basic pay.

Four-year legal battle by British Gas salesman

Joe Lock, a sales consultant for British Gas, had a remuneration package which included a basic salary plus commission based on the number of contracts he sold. But when he took annual leave, he only received his basic pay, which was less than his usual salary.

Mr Lock argued that this was a disincentive to taking annual leave and, with the help of trade union Unison, made a claim with an employment tribunal. The tribunal then referred the case to the European Court of Justice to clarify the relationship between salary and commission for employees whose commission constituted a regular part of pay.

The European Court of Justice decided that Mr Lock's commission must be taken into account when calculating holiday pay. However, the court referred the case back to Employment Appeal Tribunal in order that its ruling could be applied to UK law.

The subsequent tribunal decision found in favour of Mr Lock, and also applied an extra clause to the Working Time Regulations 1998 in order to make them comply with the Working Time Directive. British Gas appealed the decision, claiming it would be “judicial vandalism” to follow the European Court of Justice’s recommendations and interpretation of the Working Time Regulations.

The tribunal dismissed the appeal by British Gas, ruling that UK legislation could be interpreted in a way that conforms to the requirements of Article 7 of the EU Working Time Directive, which refers to entitlement to annual paid leave.

However, this latest decision may not be the end of the matter. British Gas has requested permission to take the case to the Court of Appeal to gain a definitive ruling.

Unison welcomed the tribunal's decision. “This is a victory for workers and a victory towards fair pay in this country and beyond . . . This case will have implications for thousands of workers in the UK and in Europe who for years have been denied a fair deal," said general secretary Dave Prentis.

Lucy Lindstrom, head of employment law at British Gas, said: “We have requested permission to appeal to the Court of Appeal so that there can be a definitive ruling on this issue . . . We are also continuing discussions already underway with our trade unions over how best to approach holiday pay in the future.”

Employers must review their holiday pay allowances

The tribunal's decision will influence the outcome of thousands of other pending holiday cases, and will force employers to review current holiday pay allowances so as to take overtime and commission into account. The reference period employers must use to calculate holiday pay is yet to be clarified; the ECJ has said this is a matter for national courts to decide by taking an average over a period they considered to be representative.

Employers are advised to consider what their potential exposure is to challenges of this type, given that claims could be retrospective.

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