The long awaited Tribunal decision in Lock v British Gas Trading Limited came out just before Easter.
As promised in our brief announcement blog, we have now had time, (whilst consuming too much chocolate over the Easter break), to consider the verdict in more detail.
Mr Lock brought a complaint of unlawful deduction of wages in the form of unpaid holiday pay. As well as receiving a basic salary, Mr Lock was also a participant in his employer’s commission scheme which was designed “to provide an incentive to encourage and reward individual performance”. Commission was payable when a customer started to purchase their gas from British Gas. Put simply, this pay structure meant that Mr Lock did not generate any commission during his annual leave. Consequently, he was paid reduced remuneration for the period after he returned from his holiday which, he argued, was a disincentive for him to take leave.
This case already has a long history. It was originally presented to the Employment Tribunal in April 2012 and then referred to the Court of Justice of the European Union (“CJEU”) in November 2012. You may recall that the CJEU concluded that commission must be factored in when calculating holiday pay (see our previous blog). This issue was not in dispute before the Leicester Employment Tribunal. Instead, the case now concerned a potential conflict between the European Working Time Directive (the Directive) and domestic legislation.
The question for the Employment Judge to decide was whether domestic legislation, in the form of the Working Time Regulations 1998 (the “Regulations”), can be read consistently with the Directive and, if not, whether words can and should be added in interpreting the Regulations, so that the calculation of a week’s pay conforms to the Directive.
Turning to the judgment itself, it confirms that the Regulations should be read purposively so as to be consistent with Article 7 of the Directive and appropriate words should be added to the Regulations to bring the calculation of a week’s pay in line with the Directive.
As such, regulation 16(3) of the Regulations is to be interpreted and applied as if the following paragraph were added to it:
“…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 purposes of section 221.”
The implication of this additional wording means that the holiday pay of such workers should comprise both their basic salary and an amount that reflects the commission (or other regular variable pay component) previously earned over a representative period. It is not yet known what the correct representative period will be; it may be logical to apply a 12 week reference period, in line with other sections of the Regulations, although there are already concerns that such an approach can lead to unfairness and anomalies in the calculation of holiday pay.
Like the Bear case on non-guaranteed overtime, this case applies solely to the four weeks leave (also known as “EU leave”) and not the whole of the 5.6 weeks’ leave granted under the Regulations.
Unfortunately, the judgment did not deal with all of the issues addressed by the CJEU and we are currently no closer to knowing the precise principles to be adopted when calculating the sum payable to a worker to recompense him for commission he might have earned if he had not been on holiday. One interesting argument put forward by British Gas is that the commission scheme can operate in such a way as to adequately compensate a worker during periods of annual leave – despite it being technically unlawful. These arguments will be considered and issues determined at a future date to be confirmed.
However, the decision does confirm an important principle, that commission must be factored in when calculating holiday pay and this is now possible under the newly amended Regulations. However, the decision does not take us as far forward as we would have hoped and many issues remain unresolved. In the meantime, if you have not already, it is a timely reminder to review not only your overtime policy, but in addition the operation of your commission schemes.
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