Following the decision of the Court of Justice of the European Union (CJEU) in Lock v British Gas Trading Ltd that holiday pay must correspond with workers’ normal remuneration, the employment tribunal has held that the Working Time Regulations had to be interpreted so as to comply with EU law.

Basic facts

Mr Lock, who worked for British Gas as an Internal Energy Sales Consultant, was paid a basic salary and commission. The amount of commission earned depended on sales of contracts for energy supplies with British Gas and generally made up 60 per cent of his pay. As he was unable to make any sales during his annual leave he was not able to generate any commission which meant he received a lower rate of pay following his annual leave. He therefore lodged a claim for unlawful deduction from wages for the period he took annual leave.

The CJEU held that the commission Mr Lock earned was intrinsically linked to the performance of his duties and formed part of his normal remuneration. Furthermore, Mr Lock was entitled to have the commission he would have earned had he not taken annual leave taken into account when calculating his holiday pay. The fact that Mr Lock suffered a reduction in pay some time after he had taken holiday was irrelevant The CJEU was concerned that the adverse effect on his pay might deter him from taking annual leave.

The case was returned to the tribunal to consider whether The Working Time Regulations (WTR) could be read in a way that was consistent with EU law in terms of calculating a week’s pay and if not, whether words should be added to make them conform.

Relevant law

The WTR implement the Working Time Directive (WTD). Regulation 13 of the WTR states that workers are entitled to four weeks’ annual leave in each leave year. Regulation 16 states that workers are entitled to be paid for it “at the rate of a week’s pay in respect of each week of leave”.

In order to calculate a week’s pay, the WTR looks to sections 221 – 224 of the Employment Rights Act 1996 (ERA). The amount of a week’s pay depends on whether the worker has normal working hours and whether their pay varies according to the amount of work done. Pay which varies with the amount of work done includes commission or similar payment which varies in amount.

Tribunal decision

The tribunal noted that it was agreed Mr Lock had normal working hours and that his pay did not vary. This was because his pay was not based on the amount of work done but on the outcome of work done. This meant that the commission earned fell under section 221 (2) ERA and under those provisions could not be included in the calculation of holiday pay.

The tribunal reviewed the decision in Bear Scotland Ltd v Fulton and anor (weekly LELR 397) in which the EAT held that that non-guaranteed overtime pay must be taken into account when calculating holiday pay under the WTD and that the WTR could be interpreted to achieve that in respect of the four weeks annual leave under Regulation 13. The tribunal said that the same principle applied to commission.

It was therefore necessary for the tribunal to imply words into the WTR so that they complied with EU law as that must have been Parliament’s intention when enacting the regulations. It therefore decided that Regulation 16 should be amended so that workers with normal working hours but whose pay includes commission or similar payment are deemed to “have remuneration which varies with the amount of work done for the purpose of s.221”.

Mr Lock had therefore suffered an unlawful deduction from wages as his holiday pay had excluded commission payments.

Comment

This decision makes clear that the formula for calculating a week’s pay under the Working Time Regulations does not comply with the WTD where it would result in commission, which the worker would have earned during the four weeks holiday, not being included in the calculation of holiday pay.