Holiday pay must include commission
February 24, 2016

If you have employees earning part of their pay as commission on sales, you need to be aware of the recent decision of the Employment Appeal Tribunal (EAT) in Lock v British Gas Trading Ltd.

The EAT has confirmed that commission should be included when calculating the amount of holiday pay, although they haven’t yet told us what period the commission was earned in should be taken into account in the calculation.

The Employment Tribunal first had a look at Mr Lock’s case in 2012 but stayed the proceedings while the matter was looked at by the Court of Justice of the European Union (the CJEU).

Mr Lock was a salesman for British Gas and earned commission on successful sales. He argued that, while he was on holiday, he was not able to earn commission and his holiday pay should reflect the commission he would have been able to generate if he had been at work. His legal team argued that the failure to include notional commission in his holiday pay was a breach of the European Working Time Directive.

The CJEU decided that UK law should be altered to make it clear that commission should be included. The matter went back to the Employment Tribunal in 2015 where it decided that commission should be included but British Gas appealed to the EAT which confirmed the decision.

The decision is in line with the earlier decision in Bear Scotland v Fulton (where the Tribunal decided that it should be implied into United Kingdom law to ensure that overtime should also be included when calculating holiday pay.

The question of exactly how to calculate holiday pay – what periods you should use to calculate averages, etc… – has not been spelled out so you will have to be sensible in how you decide to work it out –use a reasonably long period which is clearly fair to your employees.

For further information please contact Jennifer White, our employment and commercial solicitor at our office in Bromley on 020 8313 1300 020 8313 1300 or jennifer.white@marsons.co.uk