British Gas appeals against inclusion of commission in holiday pay in Lock


By Chesca Lord

Last week, Eversheds announced that their client British Gas had lodged an appeal against the recent Employment Tribunal Judgment in Lock v British Gas.

Eversheds stated that the appeal is on the following two grounds:

1. Commission and non-guaranteed overtime are dealt with under different provisions, which use different language, and the Tribunal incorrectly concluded that Bear Scotland, a case about overtime, had any bearing on the outcome of Lock.

 2. In any event, the EAT in Bear Scotland incorrectly concluded that our domestic legislation could be interpreted purposively to give effect to EU law.”


In light of the very clear direction of the European and now national jurisprudence, I am unconvinced that either ground will succeed. However, the appeal generates a further period of uncertainty that potentially buys employers more time to decide whether to include commission in holiday pay calculations. Given that the enhanced holiday pay rights stem from European law, the recent general election result, casting doubt on the future of the UK’s EU membership generates further uncertainty.


Ground 1: Bear Scotland has no bearing on Lock

 The suggestion that Bear Scotland has no bearing on Lock will, in my view, be difficult to sustain given:

1. The very clear finding of the CJEU in Lock that commission should be included in the calculation of holiday pay:

   “[32] … the commission received by Mr Lock is directly linked to his work within the company.Consequently, there is an intrinsic link between the commission received each month by Mr Lock and the performance of the tasks he is required to carry out under his contract of employment.


    [33] It follows that such commission must be taken into account in the calculation of the total  remuneration to which a worker, such as the applicant in the main proceedings, is entitled in respect of his annual leave.”


 Therefore even if an appellate court considers that non-guaranteed overtime is a distinct category to commission such that Bear Scotland has no relevance, they will still be bound to apply the CJEU findings that specifically relate to commission.


2. The reliance of the EAT in Bear Scotland on the CJEU judgment in Lock. Langstaff P cited [32-33] of Lock with approval at [25]. He pointed out that Williams v British Airways  and Lock together represented a “settled view expressed by the CJEU as to the meaning of Article 7” [29], namely that holiday pay should reflect “normal remuneration”, which includes “any inconvenient aspect linked intrinsically to the performance of the tasks the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided and included in the calculation of the worker’s total remuneration” [6].

Therefore rather than the ET in Lock going further than the EAT in Bear Scotland, the converse is true – the EAT applied the CJEU’s reasoning about commission in Lock in relation to non-guaranteed overtime.

3. The ET in Lock expressly caveated its findings so far as they were reliant upon Bear Scotland, statingthat it agreed with the Bear Scotland reasoning even “to the extent that the EAT’s decision or ratio in Bear Scotland is not binding on this tribunal” [102.1].


Ground 2: Not possible to apply Marleasing interpretation

The arguments before the ET in Lock in relation to interpretation in conformity with the Directive were largely similar to those discussed at length before and rejected by the EAT in Bear Scotland. Although Langstaff P gave permission to appeal this issue because it was of some importance, he did not consider that it had reasonable grounds of success [120]. I am inclined to agree with him.

The Supreme Court recently stated in Robinson v Swift [2014] 1 WLR 3438 that: “A national court must interpret domestic legislation, so far as possible, in the light of the wording and purpose of the Directive which it seeks to implement. This is now well settled” [20].

British Gas’ arguments on this point before the ET focused on the conforming interpretation “going against the grain” of what Parliament intended when enacting the WTR. In Bear ScotlandLangstaff P considered that there was nothing intrinsic to the Regulations which required holiday pay to exclude payment for non-guaranteed overtime [66]. Similarly, the Regulations do not exclude payment for commission. Sections 221-224 ERA 1996 do not deal with the situation where hours are constant but pay varies according to performance.

Even if they did, the interpretive power of the courts in such circumstances is broad, allowing interpretations in direct conflict with domestic provisions where necessary. In Larner v NHS the Court of Appeal read in an exception to Regs 13(9)(a) and 14 WTR (which disallowed carry-over of holidays into subsequent leave years) where it was necessary to do so to give effect to the Directive as interpreted by the ECJ in Stringer.


Future uncertainty: appeals and EU membership

 The Lock appeal is unlikely to reach the EAT until late 2015. Given the significance to both employers and employees there may be further appeals to the Court of Appeal and Supreme Court. Even if an appellate court affirms the current ET decision, the actual mechanics of the calculation of commission in holiday pay will still require to be determined by a further ET hearing, and those findings may also be appealed.

Meanwhile, David Cameron pledged to hold a referendum on EU membership by 2017 and is reportedly pressing ahead with negotiations with a view to potentially brining a referendum forward into next year.

The coalition government swiftly introduced The Deduction from Wages (Limitation) Regulations 2014 in order to mitigate the impact of Bear Scotland on businesses (see our earlier blog questioning their authority for doing so). If the UK were to withdraw from Europe following a referendum, Reg 13 WTR leave would become a purely domestic right akin to Reg 13A leave. We could feasibly see the introduction of further legislation reversing domestic jurisprudence that interpreted Reg 13 in accordance with EU principles (e.g. Bear Scotland and the Supreme Court in Williams), reinstating the Court of Appeal’s position in Bamsey v Albon Engineering and Manufacturing and Evans v The Malley Organisation that non-guaranteed overtime and commission are not to be included in the calculation of holiday pay.


Practical steps for businesses & employees

The political and legal uncertainty puts employers in a difficult situation. They could start including non-guaranteed overtime and commission in holiday pay now in order to extinguish back pay liability while the three-month break in the series rule is in their favour (this point is reportedly subject to appeal in another case). However, if the courts and/or government reverse the findings Lock, Williams and/or Bear Scotland, they may find themselves contractually bound to make unnecessary payments indefinitely. Drawing attention to the potential rights may also trigger claims for back pay.

A “wait and see” approach may avoid incurring unnecessary costs but risks exposing businesses to litigation now and increasing historic liability, so is also not ideal.

Some kind of middle ground between the above approaches may be appropriate. For example not paying now but keeping a reserve fund to meet potential claims by holding money back elsewhere, such as salary increases or bonus pools. Or restructuring commission arrangements so that the business pays out less “ordinary” commission and the balance as a percentage specifically allocated as “holiday pay” commission (but be aware that this is likely to involve negotiating a contractual variation).

Alternatively, businesses could consider including additional elements in holiday pay but making clear this is only for a limited time such as the current leave year. This would extinguish back pay liability while allowing businesses a discretion to revert to previous procedures in the event that the law finally settles on a basic pay-only basis, but involves the same risk set out above of drawing attention to potential live claims.

Each option has advantages and disadvantages and the appropriate solution for each individual business will depend on the potential liability each one faces and their risk approach. It is advisable for businesses to audit their holiday pay liability. Doing so for the purposes of obtaining legal advice will mean findings are privileged should employees commence claims.

Workers considering bringing claims would be minded to do so before 1 July 2015, when The Deduction from Wages (Limitation) Regulations 2014 will bite to limit back pay claims to two years. Tribunals may stay holiday pay commission claims pending the Lock appeal, so Claimants should be warned that they may be in for a wait. During that time, they or their representatives will need to keep a close eye their holiday and payment dates to ensure amendments are issued appropriately (in accordance with the ET Presidential Guidance issued in December 2014) to protect their position on limitation and the 3-month break in series rule.