Holiday Pay

15 March 2016

After a series of cases regarding holiday pay, there has been a ruling on the British Gas v Lock case. Mr Lock was a sales consultant for British Gas and in addition to his basic pay he was paid monthly commission based on the number and type of contracts he persuaded customers to enter into. However, when Mr Lock decided to take holidays his pay did not account for what he would have earned from commission and was only paid basic pay. Mr Lock challenged this amendment.

The outcome 
The European Court of Justice (ECJ) has confirmed that when employers are calculating holiday pay they MUST take into account ‘commission or similar payments’ an employee would normally receive when working. The ECJ determined that failing to pay normal pay (including commission) in respect of annual leave, is contrary to the Working Time Directive. They found that by not paying commission it could deter the worker from taking the leave they were entitled to particularly where commission makes up a substantial proportion of their total pay.

What does this mean?
Essentially paying basic pay alone is unlawful but there is a question around the extent to which an employee can claim historic payments. Although there is legislation to limit back payments to two years, those employers who have had claims “resting” in the system (due to awaiting judgment from this case), which were lodged before July 2015 may be faced with paying out more. Nonetheless, employers should assume that commission should be included in holiday pay.

This is not the end of it…
Given the large number of people affected it would not be surprising if British Gas appeal this decision. Watch this space, there will no doubt be a further update!