But uncertainty is likely to continue on exactly how employers should calculate it

The Employment Appeal Tribunal (EAT) recently published its decision on an appeal by the employer in the case of British Gas Trading v Lock heard in December. The EAT rejected the appeal and upheld an earlier decision that commission payments should be included in the calculation of holiday pay. The appeal is the latest in a long running saga on what payments should be included in holiday pay calculations.

The key question in this appeal by British Gas was whether the previous employment tribunal was right to insert wording into the Working Time Regulations 1998 (WTR) to require commission and similar payments to be included in holiday pay calculations. This follows an earlier EAT decision in Bear Scotland v Fulton that employers should include overtime in holiday pay.

British Gas had argued that the employment tribunal should not have followed the Bear Scotland decision because that was about whether overtime payments should be included in holiday pay and this was different from commission. It also maintained that the EAT in Bear Scotland had been wrong to conclude that wording should be added to the WTR to ensure it conformed with a European Court of Justice ruling that commission should be included in holiday pay. The employer thought the EAT was not bound to follow this decision. The EAT took the view that if Bear Scotland was wrongly decided, it was for the Court of Appeal to rule on the issue.

Unfortunately, the present judgment does not shed any light on a number of practical issues, and a further employment tribunal hearing will now be required to determine how much compensation British Gas must pay the claimant to compensate him for the missing commission payments. The tribunal will also need to decide the relevant reference period for calculating the commission and whether this should be the previous 12 weeks, the previous 12 months or some other period. The European Court of Justice simply said this was a matter for national courts to determine by taking an average over a period they considered to be representative.

It appears that British Gas is seeking leave to appeal to the Court of Appeal, and it seems likely permission will be granted given the EAT’s comments on the Bear Scotland case. This hearing is unlikely to take place before next year. Once again, this leaves employers waiting for a definitive answer on whether they have to include commission payments when calculating holiday pay. One possibility is that the Court of Appeal will take the view that the Working Time Regulations are incompatible with EU law and that new legislation is required to implement this, but so far the government has been reluctant to intervene and there have been no recent indications that it plans to legislate in this area.

An appeal will also delay a tribunal considering what reference period would be appropriate to use for the calculation of holiday pay. So the uncertainty on commission and holiday pay is likely to continue for some months, and there is still not clarity from the courts on whether bonus payments and voluntary overtime must be taken into account when calculating holiday pay.

Many thousands of employee claims for enhanced holiday pay have been submitted across the country and these had been stayed waiting for the outcome of this appeal. The employers involved will now undoubtedly want to persuade tribunals to continue pausing these claims until any further appeals and hearings on the referencing period are concluded.

Against this backdrop, employers should take legal advice before settling any claims for underpaid holiday pay or changing the way they calculate holiday pay, because it seems likely it will take years to resolve these issues fully in the courts.

Serena Spink is an associate at Stevens & Bolton LLP

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