In the case of Lock v British Gas Trading Ltd, the employment tribunal has confirmed that UK domestic legislation can be interpreted so as to require employers to take commission payments into account when calculating a worker’s holiday pay i.e. in line with an earlier ECJ judgment in the case.

Although this underlying calculation principle was not in doubt, there had remained an outstanding issue about whether, given the way the Working Time Regulations are drafted, they can be reconciled (ie construed consistently) with that underlying principle and whether, therefore, UK legislation places the necessary obligation on employers to calculate holiday pay on this basis. This latest tribunal judgment has found that the Working Time Regulations can be consistently construed, and therefore they do place employers under the necessary obligation.

The Tribunal held that additional words must be read into the Working Time Regulations and that these extra words have the effect of treating a person such as Mr Lock as a worker whose pay “varies with the amount of work done” (for the purposes of section 221 Employment Rights Act 1996). In turn, that means the employer must calculate holiday pay by reference to the worker’s average hourly rate of pay received in the 12 week period prior to taking leave. That average will likely include an element reflecting previous commission earned by the worker.

This decision is the final piece completing the jigsaw and confirmation that where a worker is remunerated by reference to commission earned, their employer must take that into account when calculating their holiday pay.

As the employment tribunal was at pains to point out, this decision applies only to the 4 weeks of holiday entitlement that derive from EU legislation. It does not apply to the additional 1.6 week holiday entitlement granted under regulation 13A of the Working Time Regulations, or to any other additional entitlement deriving under a worker’s contract.

This decision does not come as any surprise. If they have not already done so, employers should now be considering whether they need to rethink their method of calculating holiday pay.

If employers have been failing to pay enough to workers on annual leave, they face the risk of unlawful deduction claims from workers and former workers for back payments. These claims will be subject to certain limits and constraints – for instance, (see our previous comments in connection with the recent Bear Scotland case here and Lucy McLynn’s discussion on the topic). Also note that after the Bear Scotland judgment, the government introduced new regulations which will have the effect of limiting any claims lodged on or after 1 July 2015 to a maximum backdating period of 2 years, though this particular limit will not apply to any claims lodged before then.

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Louise McCartney

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Posted on 26/03/2015 in Legal Updates

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