Commission and bonus schemes are very common across the retail sector and it is not unusual for sales staff to earn a reasonable chunk of their income via commission. Retailers will therefore no doubt be more than familiar with the challenges that they face keeping track of and interpreting the steady stream of case law impacting on holiday pay and how this is calculated in reference to commission and bonus schemes.

The most recent decision is the Court of Appeal decision in British Gas Trading Ltd v Lock and another [2016] EWCA Civ 983. Mr Lock had been employed on a remuneration package that included not only basic salary but a success-based commission entitlement. Mr Lock claimed that, while he continued to receive commission in respect of sales he had already achieved during his holiday, he lost out because he was not able to generate any new commission while he was on holiday. Mr Lock therefore argued that he should have been paid commission as part of his holiday pay.

His employer resisted on the basis that this was not provided for in the wording of the Working Time Regulations 1998 (the Regulations) or the UK statutory definition of “a week’s pay”. While those workers not working normal working hours would typically receive commission payments as part of the holiday pay calculation (based on the 12 week calculation period prior to the holiday), this was not the case for those workers with 'normal' working hours and where commission was based on success and not on the amount of work done.

So what has the recent Court of Appeal's decision confirmed? In short, the Court agreed with the previous decisions of the employment tribunal and the Employment Appeal Tribunal so the position has not changed: namely, that commission should be included in the holiday pay calculation for workers in Mr Lock's position.

In coming to this decision, the Court reconfirmed that:

  1. The UK courts must take into consideration the rules and criteria set out by the European Court of Justice and the objectives pursued by the EU Working Time Directive (the Directive) when assessing the method of calculating the commission element of holiday pay.
  2. The Regulations were introduced with the purpose of implementing the Directive and this purpose included implementing the 'normal remuneration' measure (including by reference to the commission workers earn) for the purpose of calculating holiday pay.
  3. It could interpret the Regulations by implying extra words into the Regulations to achieve compliance with the aims of the Directive.

While the decision does not specifically change anything and confirms the position that we have been familiar with for the last couple of years, the Court did provide employers with a glimmer of hope by emphasising that its judgment was very much addressing the circumstances of Mr Lock's case and those who receive a form of results-based commission; the principles should not necessarily be extended to all types of commission, as this was fact specific and should be considered on a case by case basis.

Counter to this is the frustration that the Court declined the opportunity to explain to employers how to incorporate commission payments into holiday pay calculations and, in particular, what reference period to use. Retailers are therefore left having to make up their own minds, taking into account their respective commission schemes. This is particularly problematic for those retailers who operate a one-off annual bonus scheme or perhaps more regular bonus/commission payments based on a particular level of turnover or profit for example.

Several uncertainties still remain in respect of how to calculate holiday pay and what to include on top of basic salary and we suspect it will be some time before there is any settled law in this respect. We understand that British Gas is seeking leave to appeal to the Supreme Court which, if granted, will mean we are unlikely to receive the final decision in this case for at least another year. The anticipated impact of Brexit will no doubt also add to the uncertainty in this area.