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Holiday pay – the latest chapter

The long-running saga on holiday pay is set to enter another chapter after British Gas announced plans to appeal against a key ruling.

The company is appealing against the decision made in the case Lock v British Gas.

In this case, the Employment Tribunal followed the findings of the Employment Appeal Tribunal (EAT) in the Bear Scotland case and concluded that commission must be included in the calculation of holiday pay for the 20 days’ holiday granted under European law.

As a result of these two cases, employers potentially faced a substantial increase in the amount of holiday pay that they had to pay their employees.

However, British Gas has now lodged an appeal in the EAT in an attempt to overturn the decision of the ET in their case.

We understand that there are two grounds of appeal:

1. Commission and non-guaranteed overtime are dealt with under different provisions which use very different terminology therefore British Gas argues that the ET was wrong to conclude that the Bear Scotland case (a case about overtime) should have had any influence over the decision of Lock v British Gas (a case about commission).

2. The EAT in Bear Scotland incorrectly found that our UK legislation could be interpreted in a manner to give effect to EU law.

On the face of it, if it is successful, this appeal could have wide-ranging implications as it could overturn both Bear Scotland and Lock and therefore be very positive for employers.

We understand that the appeal is likely to be heard by the EAT at the end of this year.

What effect will this have?
The immediate impact of this news is that any current holiday pay claims in the ET system are likely to be stayed pending the outcome of this appeal.

The other issue for employers is whether they should follow the Bear Scotland and Lock cases and implement changes to the calculation of holiday pay when there is the potential that they could be overturned.

It is our view that we would be surprised if the Lock appeal was to succeed based on the grounds of appeal and how extensively these issues were dealt with the EAT’s judgment in Bear Scotland.

Therefore we are fairly confident that the Bear Scotland and Lock cases will stand and unfortunately employers will have to include overtime and commission in the calculation of holiday pay (subject to the reference period and it only applying to 20 days holiday).

What should employers do?
Whatever your decision is about the calculation of holiday pay in light of this news, we would recommend that you take advice before implementing any change.

Please do not hesitate to contact the Ward Hadaway Employment Team with your queries.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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