Commission payments

The Court of Appeal has upheld the tribunal and Employment Appeal Tribunal decisions in British Gas Trading Ltd v Lock and anor that the Working Time Regulations (WTR) have to be interpreted to comply with the European Working Time Directive when calculating holiday pay. That means they can include results-based commission payments.

Basic facts

Mr Lock, an energy sales consultant for British Gas, was paid a basic salary and commission, which made up 60 per cent of his pay. As he was unable to make any sales during his annual leave he was not able to generate any commission which meant he received a lower rate of pay after taking holiday.

He lodged a claim for unlawful deduction from wages for the period he took annual leave which was referred to the Court of Justice of the European Union for consideration. It held that Mr Lock was entitled to have the commission he would have earned had his annual leave not been taken into account when calculating his holiday pay (LELR weekly 377)

The case was returned to the British courts to consider whether the WTR could be read in a way that was consistent with EU law in terms of calculating a week’s pay and if not, whether words should be added to make them conform.

Relevant law

Regulation 13 of the WTR (which implement the Working Time Directive) states that workers are entitled to four weeks’ annual leave. Regulation 16 states that workers are entitled to be paid “at the rate of a week’s pay in respect of each week of leave”.

Sections 221 to 224 of the Employment Rights Act 1996 (ERA) set out how to calculate a week’s pay, depending on whether the worker has normal working hours and whether their pay varies according to the amount of work done. As Mr Lock’s pay did not vary (it was based on the outcome of work done, not on the amount of work done), the commission earned fell under section 221(2) ERA. Under those provisions, it could not be included in the calculation of holiday pay.

Tribunal and EAT decisions

The tribunal (weekly LELR 419) held that, as the EAT had already decided in Bear Scotland Ltd v Fulton and anor (weekly LELR 397) that non-guaranteed overtime pay must be taken into account when calculating holiday pay, the same principle applied to commission.

As such, it held that regulation 16 should be amended so that workers with normal working hours but whose pay includes commission or similar payment are deemed to “have remuneration which varies with the amount of work done for the purpose of s.221”. Mr Lock had therefore suffered an unlawful deduction from wages as his holiday pay had excluded commission earned.

The EAT (weekly LELR 464) agreed with the tribunal that it was not just permissible to imply words into the WTR to ensure they complied with EU law, it was necessary to do so as there was nothing in the regulations to indicate that Parliament intended to exclude results- based commission when calculating holiday pay.

Decision of Court of Appeal

The question for the Court of Appeal was whether the tribunal could interpret the WTR so that holiday pay included commission payments, even though this seemed to be contrary to the law set out in section 221(2) ERA.

The Court concluded that Mr Lock was entitled to have his holiday pay calculated by reference to his normal remuneration. Although this meant that words had to be implied into the WTR, this did not mean the Court was repealing or amending the legislation. Instead it was performing its duty to provide a conforming interpretation for the purpose of implementing the directive.

The tribunal and the EAT had therefore interpreted the WTR correctly and the appeal was dismissed.