• Court of Appeal Decision: Holiday Pay under Working Time Regulations includes Commission

    In British Gas Trading Ltd v Lock and anor, the Court of Appeal has upheld the EAT’s decision that the Working Time Regulations 1998 SI 1998/1833 (WTR) can be interpreted compatibly with the EU Working Time Directive (No.2003/88) so as to include results-based commission payments in the calculation of holiday pay for the basic four weeks’ annual leave provided by Reg 13.

    L was employed as an energy trader. Under Ss.221–224 of the Employment Rights Act 1996, incorporated into the WTR by Reg 16 for the purpose of calculating holiday pay, he was a worker with normal working hours whose remuneration did not vary with the amount of work done. Commission earned on sales was a particularly important part of L’s remuneration package, representing around 60 per cent of his basic pay. When L took holiday, he was entitled to basic pay and continued to receive commission based on his earlier sales. However, his commission payments were lower during the months that followed because he had been unable to generate sales while on holiday. This result was consistent with Evans v Malley Organisation Ltd t/a First Business Support (Brief 730), in which the Court of Appeal held that the holiday pay of a worker in L’s position should be calculated by reference to the definition of a ‘week’s pay’ in S.221(2) ERA and did not include commission.

    L complained to the Leicester Employment Tribunal. He argued that, since the ECJ had held in British Airways plc v Williams and ors (Brief 935) that holiday pay should reflect normal remuneration, his pay should be enhanced to reflect the commission that he would otherwise have earned during annual leave. Faced with an apparent conflict between domestic and EU law, the tribunal made a reference to the European Court of Justice for a preliminary ruling. In Lock v British Gas Trading Ltd (Brief 999) the ECJ held that commission payments must be taken into account when calculating holiday pay under Article 7 of the Directive. The case then returned to the tribunal, where the question for determination was whether the WTR could be interpreted so as to give effect to EU law.

    The tribunal held that there was no obstacle to interpreting the WTR so as to include commission payments in the calculation of holiday pay for Reg 13 leave – Lock and ors v British Gas Trading Ltd and anor (No.2) (Brief 1019). This was achieved by reading the legislation as if it contained a new Reg 16(3)(e). Thus, for the purpose of determining a week’s pay, Ss.221–224 ERA shall apply ‘as if, in the case of the entitlement under Reg 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of S.221’. The effect of this deeming provision was that a ‘week’s pay’ was calculated not under S.221(2), but by taking an average of L’s remuneration over a 12-week period, including any commission – S.221(3). The tribunal’s decision was upheld by the EAT in British Gas Trading Ltd v Lock and anor (Brief 1042). BGT Ltd appealed to the Court of Appeal, arguing that it had not been open to the tribunal to amend the WTR under the guise of interpretation, and that in any event a conforming interpretation was precluded by domestic authorities.

    Sir Colin Rimer gave the Court’s judgment. He noted that the domestic decisions on which BGT Ltd sought to rely – the Evans case, and Bamsey and ors v Albon Engineering and Manufacturing plc (Brief 756) – were based on the premise that Member States have a free hand in determining levels of holiday pay. Subsequent ECJ case law had shown that premise to be false: holiday pay under Article 7 must be calculated by reference to the worker’s ‘normal remuneration’, including commission. The question for the Court was whether it was possible to interpret the WTR consistently with Article 7. This depended on whether a conforming interpretation went with the ‘grain’ or ‘underlying thrust’ of the legislation. The Court observed that the WTR were enacted solely and deliberately to implement the Directive. It must therefore be presumed that the UK government intended to fulfil the obligations arising under the Directive in their entirety – including those requirements that were not apparent at the time when the Directive was enacted, but which became clear upon later elucidation by the ECJ.

    In the case of most types of worker, the WTR did in fact provide for holiday pay to be calculated by reference to ‘normal remuneration’. Two anomalous exceptions to that principle were workers in L’s position, and workers who regularly carried out non-guaranteed overtime (a situation addressed by the EAT in Bear Scotland Ltd v Fulton and anor and another case (Brief 1010)). Sir Colin Rimer acknowledged that if a deliberate legislative choice had been made to exclude such workers from the right to normal remuneration, that would be directly at odds with the Directive and a conforming interpretation would not be possible. However, he did not accept that these two anomalous cases reflected a positive legislative choice. As a matter of objective inference, the differential treatment inherent in the scheme of the WTR was simply not foreseen at the time when the Regulations were enacted.

    Sir Colin Rimer concluded that the ‘grain’ or ‘thrust’ of the WTR was to provide for holiday pay measured by reference to Article 7, which had been subsequently interpreted by the ECJ as requiring the worker’s ‘normal remuneration’ to be taken into account. The Court could and should interpret the WTR accordingly, so as to include L’s commission payments in the calculation. This required the implication of words necessary to make that meaning clear. Contrary to BGT Ltd’s argument, this was not a judicial exercise amounting to the impermissible repeal or amendment of the legislation. Rather, it was an example of the national court performing its duty to provide a conforming interpretation of legislation introduced for the purpose of implementing a Directive. Furthermore, it did not offend against the principles of legal certainty and non-retroactivity. The appeal was accordingly dismissed.

    The Court declined to speculate as to the position of other workers – for example, the banker who receives a results-based annual bonus, or the worker who receives commission only when a particular level of turnover or profit is achieved. In Sir Colin Rimer’s view, the wording that the tribunal had read into Reg 16 was expressed too widely in so far as it referred to all types of commission and not just contractual results-based commission. He stated that he would favour a form of wording that more clearly confined the tribunal’s judgment to the circumstances of L’s case.


    Report Thomson Reuters

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