In this article we look at the recent Supreme Court decision in the long-running case of Lock v British Gas Trading in which it has been held that a worker’s statutory holiday pay should be calculated taking into account any results-based commission usually earned by the worker.
The recent developments have added a further degree of complexity to the calculation of holiday pay following the ruling in Bear Scotland v Fulton back in 2014, and will be a significant issue for any employer in the manufacturing sector whose workers’ salary includes an element of results based commission.
Lock v British Gas Trading: the facts
This case concerned a sales consultant who was paid a basic monthly salary plus commission based on the number of sales he made. On average, commission made up 60% of his salary. In December 2011 the Claimant took annual leave and, as he did not work during this period of leave, was unable to make sales and generate commission during this time. As this had an adverse effect on his salary during the following months the Claimant brought a claim to the Employment Tribunal for outstanding pay.
The key question was whether commission should be included when calculating statutory holiday pay. The matter was referred to the ECJ, which held that commission which is “intrinsically linked to the performance of the tasks that the worker is required to carry out under his contract of employment” should be included when calculating pay in respect of statutory holiday periods.
The employment tribunal found in favour of Mr Lock accordingly. British Gas appealed to the Court of Appeal, which again found in favour of Mr Lock. British Gas appealed to the Supreme Court.
The Supreme Court also found in favour of Mr Lock, ruling that “results-based” commission should be taken into account when calculating statutory holiday pay for workers.
What does this mean for employers within the manufacturing sector?
This ruling follows that of Bear Scotland v Fulton where it was ruled that workers should have their normal non-guaranteed overtime taken into account in the calculation of their annual leave pay (read about that here).
The Claimant employees in both Bear Scotland and Lock were represented by a trade union. This will therefore be a hot topic for unions and their members, and unions will be advising workers on their entitlement both to backdated claims and to bringing their entitlements into line with the law going forward. Employers in the highly unionised manufacturing industry should be prepared for this and ready to communicate openly about the issue with unions and workers going forward.
As in Bear Scotland, the ruling in Lock applies to holiday payments for the 4 weeks of statutory annual leave; there is no requirement to factor it in for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance (although applying two different calculations could be highly impractical).
While the case has been referred back to the Employment Tribunal to decide upon issues such as the reference period used to determine the level of commission that should be included within the holiday pay calculation, there is now sufficient certainty to recommend that employers adjust their holiday pay calculations and prepare for claims of back-pay.