How Will Lock V British Gas Affect You?

As an employer, partner or a payroll manager, do you lie awake at night agonising over the various pieces of legislation that impact on worker rights to holiday pay and how this should be calculated? Great, it's nice to know we're not the only ones! In this article I will provide you with an overview of the events to date involving commission and holiday pay and what action you need to take as an employer to avoid you falling short of your legal obligations, as they stand... for now.

In the UK, holiday pay has long been at the back of employers’ minds. It was always fairly straight forward to calculate; however, it would seem that with recent changes employers will have to double check their figures, as events take a twist in the UK Courts. This will be no easy matter with many commentators pointing out that recent judgements have left things far from clear, particularly on what exactly needs to be included in holiday pay, and from when. Not only that but a recent article in the Guardian suggested that everything may be thrown out the window if the UK should chose to leave the EU. Are you still awake? Good!

What happened so far?

This journey (like all good sagas) started back in 2012, when Mr. Lock, a British Gas employee, submitted a claim to an Employment Tribunal regarding loss of earnings during his holiday period, as he wasn’t able to engage new customers on British Gas contracts while on annual leave, he had therefore suffered a loss of earnings. Mr Lock felt that his receipt of only basic pay during his annual leave period was in contradiction to the Employment Rights Act (1996) and the Working Time Regulations (1998)

Article 7 of the EU Working Time Directive requires results-based commission to be taken into account when calculating an employee's holiday pay. The original Tribunal held that it was possible to interpret the domestic legislation in a way that conformed to the EU Working Time Directive. British Gas appealed that decision and the case went before Justice Singh in December 2015.

EAT Findings

At the Appeal Tribunal, Justice Singh acknowledged that the EU Directive already requires resultsbased commission to be taken into account when calculating annual leave pay. What was in dispute, in this case, was whether or not existing UK legislation could be interpreted in a way which conformed to this Directive. British Gas also asked that the decision in the Bear Scotland case, which involved non-guaranteed overtime, should not be followed in this particular case and argued that this was a separate issue.

The Court reviewed the facts of Mr Locks employment, which were not in dispute and noted that the work carried out by Mr Lock was commission based on outcome and not dependant on the amount of work he carried out over a particular period of time. This was recognised by the Judge as falling into the category of results-based commission which must be taken into consideration when calculating pay for annual leave.

Mr Lock, while entitled to 25 days holiday per annum, plus public holidays; was only paid at his basic salary during his holiday period. The Tribunal noted that the commission earned by Mr Lock was greatly in excess of his annual salary.

Justice Singh in his judgement cited the EU Directive on paid annual leave and noted that while not expressly stated in the EU Directive, it has already been established by the EU Court of Justice that the term “paid annual leave” means that for the duration of leave, workers should have their normal remuneration maintained for that period of rest.

Justice Singh, in reference to Bear Scotland, stated that he found no difference in principle between payment for non-guaranteed over time and payment of commission in respect of annual leave pay. With regard to domestic legislation conforming to the EU directive, Justice Singh stated that the intention of Parliament when enacting the Working Time Regulations was to confirm with the EU Directive.

What does this mean for me?

Justice Singh noted that there are already 918 claims currently against British Gas, with thousands around the country being held against other employers. Therefore the impact of this judgement is substantial and the full impact on employers remains to be seen.

It is clear from looking at the particular circumstances in this case, that those employers, who currently use a commission based scheme, would be wise to review their current practices. In order to comply with the legislation, workers need to be paid remuneration that they would normally be entitled to if at work during statutory leave.

The questions (or headache), remain on how this figure should be calculated. The Employment Appeals Tribunal is due to calculate any loss of earnings suffered by Mr. Lock and this will be important for employers trying to understand how holiday pay should be calculated.

• It would be recommended that employers put aside the average value of regular commission in order to bank this towards employees’ annual leave for at least the first 4 weeks.

• Some employers may be going back over a 12 week+ period to try and evaluate on a larger scale any financial impact, by averaging out commission across their business. This would seem like a prudent course of action; in the absence of express guidance but employers would need to be mindful of what period of the year they are averaging, if not the full 12 months. 

• Others employers may wish to review their commission schemes and whether or not these are sustainable given the need to maintain the "normal" pay during annual leave. 

It has been noted that British Gas may be appealing this decision to the Court of Appeal. So the saga hasn’t finished just yet.