Further developments for holiday pay and commission: Lock decision is being appealed

Many of you will know that the issue of holiday pay and commission is a complicated and seemingly ever –changing area of law.  The recent Employment Tribunal decision in Lock v British Gas, left employers with uncertainty.  In essence the decision meant that commission ought to be included in holiday pay, as long as it was intrinsically linked to the work.  The decision was largely based on a previous case (Bear Scotland v Fulton), which considered overtime payments and holiday pay. Lock was also based on guidance from the Court of Justice of the European Union.

The decision in Lock v British Gas was deemed by many as unsatisfactory because (a) the term commission was undefined, meaning it is open to interpretation and debate; (b) the decision operates retrospectively meaning employers could be landed with large and unaccounted for costs; and (c) in any case, it was a decision made by the lower courts and open to challenge.

British Gas has confirmed that it will be appealing the decision. The decision in Lock was based on the outcome of a case that focussed on overtime:  however, commission and overtime are dealt with under different domestic legal provisions, with different terminology and, arguably, ought not to be dealt with in the same manner when it comes to holiday pay.  British Gas will also argue that previous decisions finding that domestic law should be interpreted purposively to give rise to EU law were wrong, leading to further grounds for appeal, given that this assumption underpinned the decision in Lock v British Gas.

So, where does this leave employers now?  The appeal is likely to be heard at the end of the year.  Before the Employment Tribunal decision in Lock, many cases were stayed pending the outcome of that hearing.  It is likely that we will see a repeat situation, with many more claims for unlawful deductions being stayed pending the outcome of the forthcoming Employment Appeal Tribunal hearing.

Given the uncertainty in the current legal framework on commission and holiday pay, and given the evolving state of the law, employers who pay commission on top of a basic salary are advised to take specialist advice before making arrangements on holiday pay with commission.  However you approach this area, the law may change in the foreseeable future.  Depending on your commercial approach, employers potentially either face claims for backdated holiday pay if commission is not paid during holiday leave; or face the equally unsatisfactory position of having to try and claw back overpayments, if commission is paid during holiday leave.

Should you require further advice on this matter, please do not hesitate to contact one of our legal consultants on 01273 236 236