Success-Based Commission and Holiday Pay – Landmark Decision

In a landmark decision which will boost the entitlements of thousands of sales staff who are paid on commission – and which addressed the vexed dividing line between domestic and European employment law – the Employment Appeal Tribunal (EAT) has ruled that results-based remuneration must be taken into account when calculating holiday pay.

The case concerned a British Gas employee who, on top of his basic salary, was paid commission on sales that he achieved. However, when on leave and unable to earn commission, his holiday pay was based solely on his salary. He complained to an Employment Tribunal (ET) that that was contrary to the Employment Rights Act 1996 and the Working Time Regulations 1998 (WTR).

The ET referred the legal issues raised by the case to the European Court of Justice, which found that, pursuant to Article 7 of the Working Time Directive (WTD), results-based commission had to be taken into account when calculating holiday pay. In the light of that decision, the ET ruled in the salesman’s favour that it was possible to interpret the domestic legislation in conformity with the WTD by reading additional words into the WTR.

In ruling on British Gas’s challenge to that decision, the EAT noted that UK tribunals and courts are obliged, wherever possible, to interpret domestic legislation so as to conform with European law. Only if that could not be achieved would domestic legislation prevail. In such cases of incompatibility, the only remedy lay with Parliament.

Dismissing the appeal, the EAT found that the ET’s ruling was in line with one of its own precedent decisions which was not manifestly wrong and from which there were no exceptional circumstances justifying a departure.

British Gas alone has received more than 900 similar claims, all of which hang on the outcome of the test case. There are also many thousands more against other employers which have been stayed pending the EAT’s decision.