British Gas v Lock – Court of Appeal: The latest appeal decision on holidays will mean more work for employers, but some hope?

17 October 2016

So, are we nearly there yet? Mr Lock has succeeded against British Gas in the Court of Appeal. However, it may not be a clear cut victory as far as other holiday pay claimants are concerned. There is a glimmer of hope for some employers concerned about the effect of an increase in holiday pay on their annual wage bill.

Sir Colin Rimer, giving the leading judgment, held that it was permissible for the Employment Tribunal to interpret UK legislation in a way that implements the EU Working Time Directive in relation to the calculation of normal remuneration. This involves rewriting the UK legislation – something that the courts have been prepared to do if necessary to implement EU law. As such, Mr Lock’s results-based commission should have been taken into account in his holiday pay.

However, Sir Colin was very clear that this decision was restricted to the specific facts of Mr Lock’s case and that other types of payments would require separate consideration by the courts. He drew particular attention to other types of cases, Bankers’ bonuses and differently established commission schemes, only to expressly reject any suggestion that what he was saying in relation to Mr Lock’s case had any answers for them. The same cautiousness also doesn’t take things further in relation to the possible inclusion of overtime in holiday pay calculations – an area of enormous concern. He also clearly stated that he made no comment on how the calculations should be made. That, it seems, is for a later date.

He then took matters a step further, by saying that the wording implied into UK legislation by the Tribunal was expressed too widely “insofar as it refers to all types of commission and not just to contractual ‘results-based commission’ that is the subject of Mr Lock’s case.” Therefore, even within the realm of commission payments, he imposed restrictions on how far the judgement goes. He then stated he favoured “an appropriate amendment to the ET’s judgement that will more clearly confine it to the circumstances of [Mr Lock’s] case” (our emphasis).

Where does this decision leave employers?

The narrow scope of this decision gives employers a much broader opportunity to fight their corner should they be faced with tribunal claims about holiday pay with pay arrangements that are not the same as Mr Lock’s commission. The case has, quite simply, been decided on its facts. Different facts could therefore lead to a different outcome.

That could mean that when the stay is finally lifted on the many thousands of holiday pay claims on hold in tribunals across Great Britain, tribunals will have to consider each case on its facts. In other words, the test cases will not provide the answers.

Sir Colin Rimer’s express hesitation in reaching the conclusion that the UK law can be rewritten to meet the requirements of the EU Directive (saying that he “wavered”) also suggests that the case is going to go to the Supreme Court. That would be likely to add another year onto the litigation.

There is some comfort for employers in the recent first instance decision (i.e. Employment Tribunal) in the case of Brettle v Dudley Metropolitan Council. This held that some voluntary overtime (as well as out of hours standby payments, call out allowances and taxable elements of travel allowances) should have been included for the purposes of calculating statutory holiday pay.

That may be unnerving at first glance, but the decision is limited in two very significant ways:

  1. It only applied to the so-called ‘EU days’ (which would be taken first in the holiday year) and not the additional eight ‘UK days’ under 13A of the Working Time Regulations or any additional contractual leave. Also, the ‘EU days’ should be interpreted as the first holiday taken in any given holiday year. If that is correct, it is likely to leave gaps of over three months between the last ‘EU day’ in one year and the first ‘EU day’ in the next. That, as the caselaw currently stands, means that workers will be greatly limited in how far back they can go with holiday pay claims; and
  2. The Tribunal recognises that some overtime, if it is irregular or rare, should not be included – in fact one individual’s claim was rejected on that basis. This, as with the Lock case, surely envisages a close analysis of the particular circumstances of each individual claimant’s holiday and remuneration arrangements. 

Until now, the various Courts’ direction of travel in the emerging rules on holiday pay has progressively taken away employers’ possible grounds for restricting what gets included in holiday pay. However, the measured and restrictive judgments in Lock and Brettle suggest that Claimants, with claims stayed up and down the country, may have more of a fight on their hands than they may have initially predicted would have been the case.

As such, in light of both Lock and Brettle, it may be beneficial for employers to undertake an assessment of whether their exposure is looking smaller than otherwise they may have been feared.

One should also consider the impact of Brexit – which increasingly looks likely to be a hard exit - on the emerging holiday pay rules. The Government intervened on behalf of British Gas in this case and, following the Employment Appeal Tribunal’s decision in Fulton v Bear Scotland in late 2014, swiftly introduced secondary legislation to limit claims for historic holiday pay. It appears that it is not overly fond of these emerging rules on holiday pay. Should the hard exit actually happen, we can expect a return to the rules that applied before the EU got involved.

We may be getting closer, but we’re certainly not there yet and holidays will continue to add to the workload of business owners, HR professionals and finance directors for some time.

Further information

If you have any questions about the issues raised in this blog, please contact a member of our employment team.

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