Employment & Pensions E-Bulletin Article
The Tribunal in Lock and Ors v British Gas Trading Limited has found, not unsurprisingly, that there was no obstacle to interpreting the Working Time Regulations 1998 (WT Regs) so as to include commission payments in the calculation of holiday pay in respect of the four weeks statutory annual leave set out in Regulation 13 WT Regs. It is a decision that was expected, given the steer the European courts have given on the correct calculations for holiday pay. Unhelpfully, there is still no decision as to what reference period should be used to work out average pay.
Mr Lock was an energy trader who called door to door trying to get customers to switch their energy to British Gas. If he had a successful conversion from these door to door calls he would receive commission. The commission was important as Mr Lock's basic salary was small and the commission on average exceeded his basic pay. The commission was paid to Mr Lock weeks or sometimes months in arrears as it depended on when the sales came through.
Therefore when Mr Lock took annual leave he continued to be paid as normal, which meant he was paid his basic pay and any commission that he had earned weeks before his annual leave. However, whilst Mr Lock was on annual leave, he did not have the chance to earn commission and therefore this affected his pay some weeks after he had taken holiday as no commission would come through for the time he had taken off.
Mr Lock therefore complained that he had suffered an unauthorised deduction from his wages as his commission in the weeks after taking annual leave would be lower than if he had been at work. He argued, as we all know, that holiday pay should reflect the income he would have earned had he been at work, and not just the basic pay he received whilst on holiday as had been set out by the European Courts.
The Tribunal referred the matter to the European Court of Justice (ECJ) as there was a conflict between EU law and UK Law and the ECJ decided that commission payments must be taken into account when calculating holiday pay under the EU Working Time Directive. The case was then remitted back the Tribunal for them to decide whether the WT Regs could be interpreted so as to give effect to the EU Working Time Directive and ECJ's decisions.
In reaching its decision, the Tribunal took note of the EAT's decision in Bear Scotland Limited v Fulton and Ors where the EAT held that the WT Regs were capable of being interpreted so that non-guaranteed overtime should be included for the purposes of calculating holiday pay. Whilst the Tribunal was not bound by the EAT decision, the Tribunal still endorsed the same reasoning, stating that it saw no difference in principle between non-guaranteed overtime and commission so far as holiday pay is concerned.
In reaching this decision, the Tribunal then considered what wording could be read into the WT Regs to give effect to this decision and came up with the following:
Inserting a new Reg 16(3)(e) into the WT Regs The Tribunal said: For the purposes of determining a week's pay S221 – 224 of the ERA 1996 shall apply as if in the case of the entitlement under Reg 13, a worker with normal working hours whose remuneration includes commission or a similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of S221.
It must be stressed that this new statutory construction will only apply to the calculation of holiday pay in respect of the first four weeks of leave under the EU directive. The additional 1.6 weeks leave is not affected by this decision as that is not governed by the EU Directive.
The issue of the correct reference period for calculating the average pay applicable whilst on annual leave (which is an important issue that needs answering) has not yet been decided with the Tribunal stating at the outset that "this issue will be set aside for determination at a later date depending on the outcome of this decision." However, given that the Tribunal have read words into the WT Regs, to make them compatible with S221 – 224 of the ERA 1996, as the ERA provides a reference period of 12 weeks for persons with "no normal working hours" it would seem contradictory for the Tribunal to consider introducing a different reference period to the 12 weeks set out in the ERA 1996. As such, at this present moment in time, it seems as though the 12 weeks reference period would be the correct one to apply.