As the country debates Brexit – a timely reminder on the significance of EU law

In a much anticipated decision, British Gas Trading Limited –v- Mr Z J Lock and Secretary of State for Business, Innovation and Skills has confirmed that it is necessary and possible for additional words to be read into the UK’s Working Time Regulations 1998 (WTR) in order to give effect to the EU’s Working Time Directive.  

This judgment provides those employees earning commission as part of their normal remuneration greater certainty about how their holiday pay should be calculated but serves as a headache to those employers yet to address this issue for their commission based workforce.  

What is Lock about?

Lock was a Sales Consultant working for British Gas. 60% of his usual earnings were commission payments derived from sales. His holiday pay comprised only basic salary and as such, his holiday pay was 40% of his usual earnings.

Commission payments were made in arrears so that when Lock took holiday, his pay remained consistent (in that he received basic pay as holiday pay plus the accrued commission from the period of work prior to his holiday).

However, in the period directly following his holiday, his pay was reduced by 60% because he had not earned commission during the period of his holiday.

The Employment Tribunal hearing the case made a reference to the Court of Justice of the European Union. When the case was referred back to the Tribunal, it held that holiday pay under the Working Time Directive (the EU legislation from which the WTR are derived) cannot be calculated on the basis of basic salary alone where workers remuneration includes commission linked to sales achieved. The rationale was that workers must not be deterred from taking holiday or be placed at a financial disadvantage for doing so.

It was also held that holiday pay must include an element to offset the disadvantage of not having earned commission whilst on holiday being, in other words, average commission calculated “over a reference period considered to be representative”.

The Appeal

The employer, British Gas appealed the decision. 

Seeking to provide certainty as to the law in this area, the EAT dismissed the appeal.  In doing so, they held that Parliament’s intention must have been to comply with EU law. As such, it is possible and necessary to imply words into the WTR to comply with EU law.

So, what does this mean in practice?

This decision will not come as a surprise to many commentators who, in recent years, have observed the tide of decisions on holiday pay calculations only moving one way.

Many will recall the heavily publicised decision of Bear Scotland relating to the inclusion of overtime payments within holiday pay and which the EAT followed in the Lock decision.

The position now is that if the principles in Lock are followed then commission should be included within holiday pay calculations.

Many claims within the Tribunal system that were stayed pending the outcome of this decision will now need to be heard, or, commercial settlements reached. The significance of this judgment is, of course, that the Employment Tribunal is bound by the decision of the EAT

With this in mind, there is the possibility that the position on holiday pay could change again depending on the outcome of the EU Referendum on 23 June 2016, called by David Cameron regarding whether the UK should remain a member of the EU.

However, even if there is a vote for exit, the issue of what to do about the WTR in general is likely to remain uncertain and controversial for a considerable time. Plus, it is likely that the impact of a UK exit from the EU at some point in the future would have a retrospective effect in respect of holiday payment.

Like most things the devil will be in the detail and as soon as we are aware of the ramifications of the EU Referendum we shall inform you accordingly.

Posted: Tue 08 Mar 2016
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