Lock v British Gas Holiday Pay Case Update - Employers Must Pay Commission as part of Holiday Pay

In the decision of British Gas Trading Ltd v Mr Z J Lock and Secretary of State for Business, Innovation and Skills  heard on 7th and 8th December 2015 and published on 22nd February 2016, the Employment Appeal Tribunal (‘EAT’) confirmed that commission must be considered and paid when calculating and paying holiday pay to an employee.

This case was initially heard in Tribunal back in April 2012.

Mr Lock – a British Gas salesperson – was paid remuneration which included basic salary plus commission. When he took annual leave his holiday pay was only calculated on his basic pay and so, his holiday pay was considerably lower than his usual salary. In this regard Mr Lock argued that this was a disincentive to taking annual leave.

The case was referred to the European Court of Justice who clarified that the holiday pay calculation must take commission into account when commission was a regular part of their pay intrinsically linked to the duties under their Contract of Employment. The case was then referred back to the UK Tribunal to apply its ruling to UK law.

The subsequent Tribunal decision, which was handed down in March 2015, found in favour of Mr Lock and applied an extra clause to the Working Time Regulations 1998 to make them comply with the Working Time Directive.

The latest EAT decision will influence the outcome of thousands of other pending holiday cases and will force employers to review their current contracts and holiday pay calculations in relation to commission (as well as overtime as per the Bear Scotland v Fulton case).

Failure to apply this ruling to holiday pay calculations could lead to employee led unlawful deduction from wages claims.

The reference period employers must use to calculate holiday pay is yet to be clarified and so, Tribunals will approach this issue on a case by case basis.

View the full decision here.