Yesterday the long awaited judgment in Lock v British Gas Trading regarding the calculation of holiday pay was published. Despite reports that it is breaking news that commission should now be included in holiday pay calculations, it isn't.
By way of a brief background, 60% of Lock's normal pay was made up of commission based on sales in the previous month. Lock made a claim for outstanding holiday pay because during periods of leave he could not make sales resulting in his pay for the following month being lower than usual. When the CJEU heard this case they were asked how this commission based element of pay should be calculated but declined to answer this question, referring it back to the national courts to decide.
At a preliminary hearing, five issues were identified for the ET to look at in this case. Three of these, including the one about the reference period for calculating holiday pay, were set aside for later. One of the issues - whether the decision would apply to just the first 4 weeks of annual leave entitlement or to the whole 5.6 weeks had already been decided - any decision would only apply to the first 4 weeks. This left just the following issue to be decided and set out in the 30-page judgment: Whether the Working Time Regulations (WTR) are capable of being read purposively so as to be consistent with European law and/or whether words should be added to the WTR so that the calculation of a week's pay conforms with EU law.
The decision was that the WTR could be read purposively so as to mean that a worker who earns payments such as commission and overtime shall have their holiday pay calculated in the same way as a worker whose remuneration varies with the amount of work done. This will be achieved by Regulation 16(3) of the WTR being interpreted and applied as if it had the following paragraph added to it:
(e) as if, in the case of the entitlement under Regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.
The one thing we really wanted to know was how to work out the appropriate reference period for calculating holiday pay in situations where employees have variable pay. This was not included in the judgment. Although you could infer from the judgment that using 12 weeks as an average is correct this wasn't specifically addressed, as it was one of the issues "set aside for determination at a later date". This leaves us unclear about how to calculate holiday pay for employees who, for example, receive commission less frequently or have significant seasonal variations in pay.
We will of course keep you up to date with developments in this area but if you want to discuss this with us or get a clearer picture of your own organisation's situation and risk, please just get in touch.
If you want to read about more about the background to this case and on calculating holiday pay more generally, have a look at our article from August 2014.