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By Euan Smith, Associate

Regular readers of our blog will no doubt be aware of the long history in the case of Lock V British Gas, and similar holiday pay claims, and there has recently been another instalment.

Within the last fortnight the Employment Appeal Tribunal (EAT) has upheld an Employment Tribunal decision that the Working Time Regulations 1998, which implement the European Working Time Directive, can be interpreted to provide that results based commission should be included in statutory holiday pay.

Background

Mr Lock’s remuneration comprised basic salary and significant results based commission but only the basic salary element was paid during leave. A claim was brought on the basis that this breached the Working Time Regulations because full remuneration was not payable during statutory leave. The Employment Tribunal stayed the proceedings and referred certain questions to the European Court of Justice (ECJ). The ECJ held that, where remuneration includes results based commission, the Working Time Directive precludes a national law that calculates statutory holiday pay on the basis of basic salary alone. The ECJ remitted the case back to the Employment Tribunal.

The Employment Tribunal adopted the approach taken previously, in another recent holiday pay case (Fulton V Bear Scotland), which concerned payments for overtime. In doing so it determined that domestic legislation, contained within the Working Time Regulations, was capable of being interpreted in a way which conformed to EU law. However, it acknowledged that without such a conforming interpretation, domestic and EU provisions were opposed. Specifically, it was noted that the opposition arises from the definition of a week’s pay contained in the Employment Rights Act 1996. This legislation does not make clear that remuneration, including for commission and overtime, should be included within holiday entitlements under the Working Time Regulations. Until such time as this legislation is altered, the wording is to be interpreted in such a way as to allow conformity with the EU law/Directive.

British Gas appealed against the Tribunal’s decision and principally argued that Bear Scotland case was distinguishable and, in any event, should not be followed. Their arguments were ultimately not successful as the EAT held it was permissible and, indeed, necessary to imply words into the Working Time Regulations 1998. It was said that it could not have been parliament’s intention to create legislation which did not comply with EU law. This meant that the ‘purposive’ approach in Bear Scotland was followed, and it was held that no relevant distinction could be drawn because one case related to overtime and the other commission. The appeal was therefore rejected and, although it was accepted that Bear Scotland was only persuasive authority, it was said that earlier decisions of the EAT should not be departed from unless (for example) they were manifestly wrong.

Where we are now?

Following on from Bear Scotland, the EAT’s decision in Lock confirms the Working Time Regulations should also be interpreted so as to conform with EU law. This means that payment should be made, in respect of results based commission (as well as certain overtime payments), for at least the 4 week minimum holiday period under the European Working Time Directive. This figure being lower than minimum 28 day (5.6 week) incorporated into domestic legislation through the Working Time Regulations.

However, the decision provides no information as to the practical application of the principles and, in particular, what the appropriate reference period should be.

For example, if an employee takes two weeks of their 4 week minimum holiday entitlement under the Directive how will the additional holiday pay, in respect of results based commission, be calculated?

There is no clear answer at present but, to avoid anomalies and to allow a fair representative period, it may be prudent to use a reference period of between 6-12 months. What is for sure is that any reference period must be applied consistently in order to prevent any claims for unpaid holiday pay, equal pay and/or discrimination arising.

What is also clear is that this is not the last instalment in this saga as it would appear that British Gas are already seeking permission to appeal to the Court of Appeal. This is also likely to mean that the thousands of similar Tribunal claims will now remain stayed, pending this outcome.

Those employers who have not done so should therefore make investigations and seek further advice, to assess any exposure to back-dated/on-going holiday pay claims. However, recent legislation does mean that, if a claim is brought after 1 July 2015, then the period of claim is limited to two years prior to it being brought.

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