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Holiday pay – Employment Tribunal rewrites the Working Time Regulations

26 March 2015

Holiday pay cases continue to provide challenges for employers, and the employment tribunal decision in Lock v British Gas is no exception.

Following a reference to the ECJ, the employment tribunal found this week that Mr Lock, whose pay was made up of approximately 60% commission, should have received an element for commission included in his holiday pay.  If he did not, he was not receiving his true “pay” when he took holiday and may be put off taking holiday altogether because of the reduction in income.   The challenge for the tribunal was whether they could reach this result within the existing framework of the Working Time Regulations (the Regulations).  The tribunal found that they could read the Regulations compatibly with the EU Directive underpinning the Regulations by adding some wording which would allow commission or “similar” payments to be included in the calculation of a week’s pay. 

An issue that was left unresolved at this hearing and should be dealt with at a later hearing (if this case continues) is what period employers need to look back over to average out pay in these circumstances.  The Regulations dictate a 12 week period, but many commentators suggest that a 12 month period would be more effective, as this would flatten out fluctuations in commission, or overtime, over the course of the year.  We will have to wait for this issue to be finally resolved.

Whilst this is a only a tribunal decision and therefore not binding on other tribunals, it is clearly in line with European decisions on this issue and the direction of travel in these cases.  Employers therefore need to revisit the elements of pay that are currently included in holiday pay and consider what steps they may want to take.  Helpfully for employers, back claims will soon be limited to two years for claims started on or after 1 July. 

If you would like further information, please contact Michael Powner.