The long-awaited decision of the Leicester Employment Tribunal in Lock -v- British Gas was issued yesterday.  It confirmed, as everyone knew, that holiday pay would have to include an element in respect of commissions, but it also provides for the first time a steer (using the word advisedly, for it is actually no more than that) as to how that element should be calculated.

The Employment Judge indicated that the Working Time Regulations should be read as if amended to include a provision that “…a worker…whose remuneration includes commission or similar payments shall be deemed to have remuneration which varies with the amount of work done…“.    The consequence of that, going via section 221 Employment Rights Act 1996, is that holiday pay should be calculated on the basis of the employee’s average earnings over the preceding 12 weeks.

However, before we all run off and rewrite our employment contracts to that effect, let us look at this decision in more detail, for all is not as clear as it sounds.  There is a more than decent argument that this new formulation will be used to advance claims for employees which the case does not actually support.  In particular:

  • This is an Employment Tribunal ruling. It does not therefore have any precedent value even for other Tribunals, so a different Employment Judge could easily and unappealably reach a different conclusion on similar facts.   This ruling itself may well be appealed.
  • We do not know what the Judge meant by “similar payments”. While he went out of his way to stress that his decision did “not concern whether any other form of remuneration (such as discretionary bonuses, for example) ought to be taken into account in determining holiday pay“,  he was equally clear that he saw no meaningful distinction in principle between commission and non-guaranteed overtime, suggesting that overtime payments ought also to be included in that 12 week average.
  • The decision related to the calculation of holiday pay only for the first four weeks’ minimum leave granted by the original Working Time Regulations, and not the extra 1.6 weeks added subsequently. Whether that is a point most employers will consider worth taking is of course a moot point.
  • Most importantly, indeed crucially, the Lock case is decided on its own facts. These included the agreed position that when Mr Lock was away on holiday, he did not generate any commissions, and that as a consequence he was paid a reduced remuneration on his return.  In other words, it was established as fact that Mr Lock’s absence prejudiced his commission earnings.  In a case where that causal link from absence to reduced commission income cannot be established, it remains entirely arguable that this decision should not be applied at all, and the same should apply in relation to non-guaranteed overtime.
  • For example, even if the employee did do overtime one or two nights in the 12 weeks preceding his holiday, that in no sense means that he would have done so during his absence, and yet this formulation would entitle him to some credit for it nonetheless. Even if the commission or overtime payment related to a particular set of circumstances which would absolutely not have recurred during his absence – the overtime related to completing a project now over, for example, or the next sale likely to attract commission was months away – the employee would still receive a payment for it. Equally, if he were lucky enough to be paid for a whopping and unrepeatable deal in those 12 weeks, his holiday pay would then be inflated far beyond anything he would have earned if he had not gone away.
  • In our submission, these are circumstances which cannot be treated as dealt with by the Lock It must remain open to an employer to argue that an employee’s absence did not materially or quantifiably affect his commission earnings, or not to the extent which a bald averaging under s221 would suggest).  In those circumstances, the s221 ERA 12-week average approach taken in Lock will produce a serious injustice.   As we said here, the burden should be on the employee to prove the link between holiday absence and reduced earnings in the first place, and employers should feel entitled not to take that as read, either at all or at the level claimed for.  If you don’t think that your employee has lost out by taking holiday, you can still run that argument.  The Lock decision does not alter that.