This article was written by Hilary O'Connor (partner), Carl Richards (partner) and Cerys Williams (counsel).
We have reported widely on the series of holiday pay claims that have radically changed the law on what workers must receive during annual leave. A key shaping factor in the change has been the decision in Lock v British Gas, both in the ECJ and in the Employment Tribunal ('ET') decision, which determined that employers may include commission and other types of variable pay in holiday pay calculations but left open major practical points about how the calculation should work. The resultant legal uncertainty and fear of significant back pay claims has left many employers paralysed over how to address the issue, pending further clarification.
The parties to the Lock case have however recently announced that the ET’s judgment is being appealed by British Gas, so a definitive resolution just moved a little further towards the horizon. The appeal is reported to be on two grounds which do not merely refine the details of the current position but challenge the whole basis of the decision. Firstly British Gas argues that previous cases dealing with overtime should be distinguished as commission needs to be dealt with in a different way. Second, more fundamentally they say that the changes dictated by ECJ case law are incompatible with local law, so that it is not possible to interpret the Working Time Regulations in a way complies with European law.
So what are the potential outcomes? Well, of course, the appeal may not succeed, in which case, the law will remain as the current position (although perhaps with some of the nuances clarified). If the appeal succeeds, however, then it would mean that English law was out of step with EU law and, assuming we are still part of the EU at that time, would necessitate new UK legislation which complies with the ECJ caselaw.
So if the law will eventually end up in the same place anyway, then difference will the appeal make? Well, if it's necessary to introduce new legislation then any changes will only take effect going forward from the date the change was made. Whereas, the current cases are a reinterpretation of the current law, which means that we all have to observe the legal fiction that the case merely clarifies what the law always said. Or to put in another way, new law would mean no back pay claims for commission errors.
Although our view is that the Employment Appeal Tribunal is most likely to uphold the current position, the prospect of a potential appeal reinforces that employers who can get away with doing nothing for a bit longer should do that. In any event, legal changes from 1 July will limit back pay claims to two years so employers will be able to negotiate from a more favourable position then. As ever, we will keep you posted on further developments.