One of the key employment law judgements of 2016 has just come out; British Gas v Lock. The case concluded that employers must pay commission during employees’ annual leave – which is a costly blow with the potential to significantly increase salary bills, particularly for sales roles.

This judgement follows a series of recent cases regarding the payment of overtime during annual leave, which have also had a big impact for employers. In a blow to employers, the case confirms the Employment Appeal Tribunal’s prior judgement that commission is indeed payable during annual leave. However, this may not be the end of the legislation, as we understand that the lawyers acting for British Gas have applied for leave to appeal to the Supreme Court. In the meantime, employees are free to bring claims for back pay although a number of questions remain unresolved about the calculation of the commission during annual leave. There is growing frustration amongst employers who are still left waiting for any meaningful picture of how to implement this decision in practice. 

Facts of the case
In the British Gas v Lock case, Mr Lock argued that taking annual leave means he cannot generate sales for British Gas, so his commission is lower on his return from holiday than if he had worked. He claimed this is a disincentive against taking annual leave and that holiday pay should therefore include a sum representing the commission he would have earned if he had been at work. The case affects approximately 1,000 employees of British Gas. 

History of the claim so far
The employment tribunal referred the case to the European Court of Justice (“ECJ”).

The ECJ held that the EU’s Working Time Directive requires commission to be included when calculating holiday pay (because employees must receive their “normal remuneration” when on holiday and commission constitutes “normal remuneration” because it is “intrinsically linked to the performance of tasks under the worker’s contract”).

When the matter was referred back to the Employment Tribunal from the ECJ for a decision on the facts, the Tribunal held that certain words should be read into the English Working Time Regulations (which are derived from the EU Working Time Directive) in order to give effect to the EU Directive and the ECJ’s judgement.

British Gas appealed against the Employment Tribunal’s decision, to the Employment Appeal Tribunal. The EAT agreed with the Employment Tribunal and British Gas have now appealed the decision to the Court of Appeal. 

Arguments in the Court of Appeal and possible implications
British Gas argued that the employment tribunal should not have read words into the English legislation as this amounted to “judicial vandalism” and the court should not go against the legislature’s intention when it drafted the Working Time Regulations. In addition, it argued that commission is not comparable to overtime, so Mr Lock’s case should be distinguished from the previous cases regarding overtime and holiday pay. 

If British Gas won the appeal, this would have meant that the English Working Time Regulations are incompatible with the EU Working Time Directive and will need to be amended to make it clear that commission must be included. This change would only have been effective from the date of the new legislation, so employers would avoid large claims for back pay. As British Gas lost the appeal, the commission will need to be included in holiday pay and claims for back pay are possible, but many questions remain about the practicalities of calculating this, which will no doubt lead to further cases.