Commission payments and holiday pay
should be included in holiday pay.
The Leicester Employment
Tribunal has now delivered its decision in the case of Lock and
Others v British Gas Trading Limited.
The case concerned Mr Lock an
Energy Trader whose remuneration comprised of a basic salary plus
the commission earned by him on sales achieved. The
commission element of Mr Lock's pay was significant and on average
exceeded his basic pay. The commission was paid in arrears,
sometimes weeks or even months after the sales to which it
When Mr Lock took annual leave
he would be paid as normal, namely he received his basic pay plus
the commission that he had earned in respect of sales achieved in
the weeks prior to taking the leave.
The payments made to Mr Lock
were in line with Regulation 16 (2) of the Working Time Regulations
1998 which in turn provided that Sections 221 -224 of the
Employment Rights Act 1996 should apply to the calculation of
holiday pay. Sections 221 - 224 of the Employment Rights Act
1996 nor Regulation 16 provided for the inclusion of commission in
the calculation of a week's pay.
Mr Lock had complained to the
Leicester Employment Tribunal to the effect that he had suffered an
unlawful deduction from wages in respect of a period of annual
leave. As Mr Lock was not able to work during the holiday
period and had not therefore, completed any sales this would be
reflected in lower commission payments in the period following the
Mr Lock argued that since the
European Court of Justice had held that holiday pay should reflect
the income that a worker would usually receive had he been working,
his future payments should be enhanced to reflect the commission
that he would otherwise have earned during the period of annual
The Leicester Employment
Tribunal referred the matter to the European Court of Justice for a
preliminary hearing given the conflict between domestic and EU
The European Court of Justice
held that commission payments must be taken into account when
calculating holiday pay under the European Working Time
Directive. The case was then returned to the Employment
Tribunal to decide whether the Working Time Regulations could be
interpreted so as to give effect to European Law.
The Tribunal noted that in the
EAT in the much publicised case of Bear Scotland Limited v Fulton,
the EAT had concluded that the Regulations were capable of being
interpreted so as to require non-guaranteed overtime to be included
in the calculation.
Although, the Tribunal was not
bound to follow the EAT's decision in Bear, the Tribunal
nevertheless endorsed its reasoning and saw "no difference in
principle between payment for non-guaranteed overtime and payment
in respect of commission so far as annual leave pay is
The Tribunal then considered
how best to interpret the Working Time Regulations in accordance
with the requirements of the Directive.
The Tribunal decided that it
would read and apply the legislation as if it contained a new
Regulation 16 (3) (e). In consequence, commission
payments will be included in the calculation of holiday pay
however, this interpretation will only apply to the calculation of
holiday pay in respect of leave taken under Regulation 13 of the
Working Time Regulations namely the four week's holiday provided
for in those Regulations. The extra 1.4 weeks annual leave is
unaffected by this decision.
The decision does not address
the reference period for calculating the average commission to be
included in a weeks' pay but if in doubt or where there are peaks
and troughs in performance, commission due, for example, due to
seasonable fluctuations we would recommend an average over a 12
Posted on: 27/03/2015
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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