The Employment Appeals Tribunal’s (EAT’s) recent decision in the Lock v British Gas case is important, as it reinforces the European principle that holiday pay should reflect the income a worker would usually receive, had they been working. It provides binding authority that commission should be included in the calculation of holiday pay for the four weeks' EU annual leave. However, whilst the case appears to give employers certainty that commission should be included in holiday pay calculations, this is unlikely to be the end of the story.
Mr Lock was a salesman for British Gas who was paid basic salary plus a results-based commission (based on the outcome of his efforts, not the amount of work done). The point at issue in the case is whether or not this commission should be included in calculating his holiday pay.
The EAT has dismissed British Gas' appeal against the earlier decision of the Employment Tribunal in favour of Mr Lock, and has established the following principles:
We still have no clarity on what the appropriate reference period should be for calculating holiday pay for workers who earn commission. We may get some steer from the Employment Tribunal when it decides how Mr Lock should be compensated for his underpaid holiday. However, this will not be binding and so employers may take different approaches until we get clear authority.
Potential for appeal
Given that British Gas has nearly a thousand claims which hinge on this decision, it is very possible it will seek leave to appeal to the Court of Appeal.
What should employers do now?
If employers are not yet including commission in holiday pay calculations, a 12 week reference period may be a good starting point since this applies more generally to many holiday pay calculations. However, employers need to be prepared to keep this under review and if necessary, revise the calculations in line with further legal developments.