British Gas Trading Ltd v Lock and anor [2016] EWCA Civ 983

The Court of Appeal has delivered its judgement in the British Gas and Lock case and has concluded that the EAT was correct in ruling that the Working Time Regulations (WTR) can be interpreted to comply with the EU Directive from which they are derived to include results-based commission payments.

Readers will be aware that this test case involved a salesperson who received a basic salary and results-based commission. He received commission whilst on holiday as part of payments earned before the holiday but, because he had no way of earning commission on holiday, he received lower pay upon his return. He argued he should have had this average regular commission included in his post-holiday pay - to do otherwise flew in the face of the reasoning in Bear Scotland & Others v Fulton & Others [2015] ICR 221 in relation to overtime payments and acted as a disincentive for Mr Lock to take holidays. Such disincentives are unlawful under the working time Directive in relation to the four weeks' annual leave granted under the Directive. The employer argued that it was not open to the courts to amend the WTR under the guise of interpretation and, in any case, domestic authorities, such as Bamsey and others v. Albon Engineering and Manufacturing plc [2004] EWCA Civ 359, precluded such interpretation.

The Court of Appeal has rejected the employer's arguments. As the Court of Appeal puts it in its introduction, the practical question that is raised is whether the holiday pay of an employee with statutorily defined ‘normal working hours’, whose remuneration does not vary with the amount of work done during such hours, should (i) be calculated solely by reference to his basic pay; or (ii) include an element referable to the amount of the results-based commission he normally earned. The Court has firmly concluded commission must be included.

There are some 27 references to the 'Grain' or 'Thrust' of the legislation and whether the judgement can be interpreted as compatible or might be seen as an effective repeal of the legislation. Sir Colin Rimer concluded:

"I have therefore concluded that this is a case in which the grain or thrust of the WTR can fairly be identified as directed at providing holiday pay for workers measured by reference to criteria required by article 7 as since explained by the CJEU; and that, in line with that grain or thrust, the court can, and should, interpret the WTR as providing that Mr Lock is also entitled to have his holiday pay calculated by reference to his normal remuneration. To do so is to do no more than to interpret the WTR as also requiring his commission earnings to be taken into account when calculating his holiday pay. So to interpret the WTR does, of course, require the implication into it of words necessary to make that meaning clear. But so to imply such words is not a judicial exercise amounting to the repeal or amendment of the legislation. It is rather an example of the court performing its duty to provide a conforming interpretation to legislation introduced for the purpose of implementing a Directive."

So, subject to any appeal to the UK Supreme Court, the situation is clear in relation to 'normal' pay - holiday pay should reflect that. However, what is the situation in relation to less frequent payments for commission or bonus? The Court declined to answer:

"I add this. I have quoted the words that the ET held should be read into the WTR and the reference period that it directed should apply for determining Mr Lock’s full holiday pay entitlement... In the course of the argument, there was some discussion about how a conforming interpretation of the WTR might apply to different types of case. The court was, for example, exercised by the case of the salaried banker who receives a single, large results-based annual bonus in, say, March. Is he entitled on his summer holiday to leave pay including an element Judgment Approved by the court for handing down. British Gas Trading Limited v. Lock and Another referable to his bonus? And how does or ought the WTR deal with the type of worker who is employed on terms like Mr Lock’s, but who only becomes entitled to commission at the point in the year when a particular level of turnover, profit or other threshold is reached, which may mean that he receives no commission for some months of each year? Other types of case will raise other questions... My response to questions such as these – and to others covering other situations – is that nothing in this judgment is intended to answer them."

NOTE: The ruling in Lock applies only to the four weeks of annual leave provided for by the Working Time Regulations i.e. the minimum leave entitlement derived from the Directive. It does not apply to the extra 1.6 weeks of annual leave provided for by UK domestic law (which does not derive from the Directive), nor does it apply to any additional contractual leave period.

The full case decision is available on Old Square Chambers:
http://www.oldsquare.co.uk/images/uploads/news-and-media/British_Gas_v_Lock_judgment_COA.pdf