ZJR Lock V British Gas - Should Commission Payments Be Taken into Account when Calculating Holiday Pay?

By REC solicitor Lorraine Laryea 

Yes, in the opinion of the Advocate General, in response to a question referred to him from a UK employment tribunal (ET) about the proper calculation of statutory holiday pay. The decision in ZJR Lock v British Gas could ultimately result in employment tribunals following the same view when considering other (commission) holiday pay claims.

In the UK, workers who do not have normal working hours will have commission included in their holiday pay. However, a different calculation is used for workers who have normal working hours and receive commission that varies depending on the results of the work done (e.g. how many placements a recruitment consultant makes successfully). It is common to exclude commission when calculating holiday pay based on the current application of the Working Time Regulations. This is supported by the current leading UK case law.

ZJR Lock v British Gas

In ZJR Lock v British Gas, Mr Lock, an employee of British Gas, received remuneration made up of two elements: Basic pay (paid at a fixed rate) and commission, which was variable depending on the number of sales contracts that he secured.

The Employment Tribunal in which Mr Lock brought his claim, made a referral to the European Court of Justice (ECJ) for clarification as to the correct interpretation of the Directive. Specifically the question asked was whether a worker, whose pay consists of an element of fixed basic pay and element of variable commission, should have the commission element included in the calculation of his holiday pay?

The preliminary decision given by the Advocate General is that because the commission payments were intrinsically linked to the work specifically carried out by the worker, they should be taken into account when calculating his holiday pay in addition to his basic pay. The suggested method of calculating this would be to take into account the average commission received by the worker over a 12 month period. Interestingly the Advocate General also stated his view that not including the commission in the holiday pay would deter the worker from taking his annual leave.

The future

We must now await the decision of the ECJ but this typically follows the opinion of the Advocate General. The matter will then be referred back to the Employment Tribunal.

If the Lock decision is followed in the future, it would mean that businesses will need to reconsider the basis on which holiday pay is calculated and include commission which is intrinsically linked to a worker’s work.

For more information go to the REC Legal bulletin