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Recent employment case confirms commission to be include in holiday pay

In a recent decision The Employment Tribunal has determined that UK law should be construed to include commission in the calculation of entitlement to holiday pay.

The claimant Mr Lock was a salesperson for British Gas. He received a relatively low rate of basic pay, on top of which he received commission for successful sales to customers who signed up to be supplied by British Gas. The essence of Mr Lock’s contention was that while he took holiday leave, he was not in a position to generate commission. He contended that the calculation of his holiday pay ought to have taken into account what he would have earned from commission during the time he was taking a holiday.

When the proceedings were initially started in 2010, the Employment Tribunal referred to the matter to the Court of Justice of the European Union (the “CJEU”) the question of whether the United Kingdom ought to take commission into account in the legislation setting out how holiday pay is calculated.

The CJEU ruled on the issue in 2014. It determined that, under applicable European law, an employer should take into account commission when calculating holiday pay. In reaching this decision the CJEU did not provide additional guidance on how this was to be achieved. With regards to this aspect, it remitted the case back to the Employment Tribunal.

It appears that the Employment Tribunal will determine this issue in a number of steps. It has published one judgment and intends to issue a second judgment which will explain the appropriate period for calculating commission and what remuneration is actually owing to the claimant.

The first, recently delivered judgment, is principally concerned with whether the Court should construe the Working Time Regulations (“WTR”) in a certain way to be consistent with relevant European law. The tribunal found that it was able to construe the WTR to include commission. In reaching this conclusion it took a similar approach to a recent, similar case, Bear Scotland, which concerned the treatment of overtime in the calculation of holiday pay.

In this particular case, the tribunal determined that the claimant’s holiday remuneration ought to be calculated according to his normal working hours at his average actual hourly rate of pay (including commission), instead of basic pay only.

The tribunal therefore adopted a submission from Counsel as to what should be inserted into the regulations so that they would be construed consistently with the relevant EU law.

In a sense this is an unremarkable decision because it simply does what was required by the CJEU decision. The more interesting part of the decision will probably be the second part which should deal with the practicalities of implementing the principal established in the first decision.

It certainly is the case that there are many practicalities to be worked through. These include:

  • How work with irregular hours, such as shift work might require a different calculation;

  • How different commission schemes should be treated, for example, where there are targets which already take into account the fact that the employee will be on holiday for part of the relevant period;

  • How bonuses might be treated. This may require a clear distinction to be made between a commission and bonus, which may be a difficult issue of principle.

Generally speaking, employers would be well-advised to include commission in the calculation of holiday pay, unless it is clearly the case that it is already taken into account by compensating for time taken for holidays. However, as illustrated above there are still some issues to be worked through regarding what should actually be happening in practice. Employers would be well-advised therefore to check their practices following delivery of the second Lock decision.

There is a clear case for arguing that the commission scheme already compensates for holidays.  That said, there is still room for much debate over the precise calculation method and its implementation in practice.


Mr. James Smith
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