The Court of Appeal confirmed in this long running case that results-based commission payments must be included in the calculation of holiday pay for the basic four weeks’ annual leave provided by the Working Time Regulations (WTR). The Court was however unwilling to extend the principle to situations other than those involving contractual, results-based commission.
Mr Lock was employed as an energy trader. His commission on sales was worth about 60 per cent of his basic pay. When he went on holiday he received basic pay and any commission earned before he went away. However after his holiday he received less income because he had not been able to earn commission while on holiday.
He brought a claim in the Leicester Employment Tribunal. He argued that, since the European Court had held in previous cases that holiday pay should reflect 'normal remuneration' and not just basic pay, his pay should be enhanced to reflect the commission that he would otherwise have earned during annual leave. The tribunal referred the case to the European Court which held that commission payments must be taken into account when calculating holiday pay. The case then returned to the tribunal, which had to decide whether the WTR could be interpreted so as to give effect to the underlying EU law.
The tribunal held that it was possible to read the WTR in that way and its decision was upheld by the Employment Appeal Tribunal. British Gas appealed to the Court of Appeal, arguing that it had not been open to the tribunal to amend the WTR by interpreting it in accordance with European law.
The Court of Appeal had to decide what the underlying purposes of the WTR had been and came to the view that its intention was to implement the European Directive, even if aspects of it had not been completely clear at the time, such as how pay was to be calculated. It was now clear that this required the worker’s ‘normal remuneration’ to be taken into account. The Court could and should interpret the WTR accordingly, so as to include Mr Lock's commission payments in the calculation and could imply words into the WTR to make that clear. British Gas therefore lost its appeal.
The Court would not be drawn on how this principle might apply to other kinds of worker, such as a banker who receives a results-based annual bonus, or the worker who receives commission only when a particular level of turnover or profit is achieved. It did however make changes to the wording the employment tribunal had read into the WTR and limited it to contractual results-based commission, favouring a form of wording that more clearly confined the tribunal’s judgment to the circumstances of Mr Lock's case.
Subject to any appeal to the Supreme Court, the Court of Appeal judgment therefore clarifies the position only with regard to a specific type of commission – that is, contractual, results-based commission. Employees who earn other kinds of commission will therefore have to persuade their employers that their situation is really no different from that of Mr Lock or will have to bring proceedings of their own. This means continued uncertainty for employers over this long running problem, but the limit on back pay claims to two years does at least mean that employers can assess their potential exposure and make provision accordingly.
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