Holiday Pay – The Saga Continues

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As you may have heard, the UK Employment Appeal Tribunal (EAT) has delivered its hotly-anticipated decision in Lock v British Gas Trading Limited, rejecting British Gas’ appeal… but, in our view, it’s a bit of a damp squib, as the judgment doesn’t address the questions that are really troubling employers about how to calculate holiday pay on a practical basis.

Instead, consideration of these issues has been postponed to the next stage in the saga, which will be either another appeal by British Gas to the Court of Appeal, or a return to the Employment Tribunal. For employers, it’s therefore still very much a case of “watch this space”.

In Depth

What Has Been Decided?

Keen followers of the holiday pay saga through various tribunals and courts will recall that, some time ago, the European Court of Justice (ECJ) decided that workers who are paid commission should, as a matter of principle, receive holiday pay at a rate reflecting normal income, which can include commission, rather than their basic salary only.

The UK Employment Tribunal then tackled the inconsistency between the ECJ’s finding and the Working Time Regulations (WTR) by devising words to be read into the WTR. British Gas appealed this point to the EAT, arguing that it wasn’t permissible for the Employment Tribunal to re-write UK legislation that had been carefully drafted by Parliament.

Perhaps unsurprisingly, the EAT dismissed the appeal, and confirmed that the WTR should be interpreted so as to conform with EU law. The EAT did not, however, take the opportunity to go further and grapple with the more interesting aspects of the case concerning the precise nature of that interpretation and the practical calculation of holiday paypreferring to leave that to the Court of Appeal.

What Happens Next?

Employers are waiting to see whether or not British Gas will seek to appeal the point again, this time to the Court of Appeal.

If it does not, the case will instead return to the Employment Tribunal, which should, at last, address some of the more pressing practical matters as to how an employer should go about actually calculating the amount of variable commission to be included in holiday pay.

In particular, employers will no doubt eagerly await a view from the Employment Tribunal as to:

  • Whether or not a commission scheme may already “price in” any required element of holiday pay (as British Gas will no doubt argue).
  • Whether employers have the flexibility to set a reference period that is workable for their particular business in order to assess the average amount of commission that should be included in holiday pay, or whether all employers are stuck with the standard 12 week period set out in the WTR.

What Should I Do Now?

While the latest judgment is a reminder to keep this case on your radar, the next stage — regardless of whether it takes place in the Court of Appeal, or a further Employment Tribunal hearing — is the one that should give employers greater clarity about how best to address these points.

We will, of course, keep you informed of further developments. In the meantime, please don’t hesitate to contact the authors or your usual McDermott lawyer if you would like to discuss the issues raised.