The Employment Appeal Tribunal (EAT) has upheld the tribunal decision in Lock v British Gas Trading Ltd that the Working Time Regulations (WTR) have to be interpreted so as to comply with the European Working Time Directive when calculating holiday pay.

Basic facts

Mr Lock, an energy sales consultant for British Gas, was paid a basic salary and commission, which 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 after taking holiday.

He lodged a claim for unlawful deduction from wages for the period he took annual leave which was referred to the European Court for consideration. It held that Mr Lock was entitled to have the commission he would have earned had his annual leave not been taken into account when calculating his holiday pay.

The case was returned to the tribunal to consider whether the 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

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

Sections 221 to 224 of the Employment Rights Act 1996 (ERA) set out how to calculate a week’s pay, depending on whether the worker has normal working hours and whether their pay varies according to the amount of work done. As Mr Lock’s pay did not vary (it was based on the outcome of work done, not on the amount of work done), the commission earned fell under section 221(2) ERA. Under those provisions, it could not be included in the calculation of holiday pay.

Tribunal decision

The tribunal first considered 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 Working Time Directive; and that the WTR could be interpreted to achieve that in respect of the four weeks’ annual leave under Regulation 13.

The tribunal held that, as the same principle applied to commission, 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 earned.

British Gas appealed, arguing that the circumstances in Mr Lock’s case were different to those in Bear Scotland and that the two cases should therefore be distinguished.

EAT decision

The EAT dismissed the appeal, holding that the cases were not distinguishable and that although it was not bound by the decision in Bear Scotland, there was no reason to depart from it as it was not manifestly wrongly decided, neither were there any exceptional circumstances to justify such a departure. If it was wrongly decided, it was for the Court of Appeal to say so.

It agreed with the tribunal that it was not just permissible to imply words into the WTR to ensure they complied with EU law, it was necessary to do so as that would have been Parliament’s intention when enacting the regulations.