Ms N Rogers and others v HHGL Ltd T/a Homebase (in administration) and The Secretary of State for Business and Trade: 2302764/2025 and others
EMPLOYMENT TRIBUNALS
Case No 2302764/2025
Between
Ms N Rogers & others (see attached Schedule) Ms N Rogers (C1) Natasha Dilloway (C2), Jamil Khan (C3), Brigitte Bishop (C4), Richard Nuttall (C5)ClaimantHHGL Limited t/a Homebase (in administration) (R1) The Secretary of State for Business and Trade (R2)Respondent
Before
Employment Judge M Da CostaDate 5 September 2025
REASONS
[1]The claimant Ms Rogers was employed by R1 until she was made redundant. Her last day of work was 31 January 2025. The company had gone into administration on 13 November 2024. The notice of redundancy was given on 21 January 2025.[2]By this claim the claimant Ms Rogers brings a claim against R2 for failure to pay a sufficient amount under a redundancy payment. Ms Rogers’ the claimant’s case is not that she was not paid a redundancy payment at all or that she was not paid for the correct number of weeks in accordance with her past service, but instead that the calculation made by the insolvency practitioner and R1 together, and then adopted by R2 in the processing of her redundancy payment, accounted only for her basic pay and did not include an amount to acknowledge commission payments which were regularly paid to her as variable amounts of her wages.[3]The claimant Ms Rogers also brings a claim against R2 for failure to pay a sufficient amount of notice pay upon redundancy. As above, her case is not that the number of weeks’ pay was incorrect, but that the amount paid in respect of each week was incorrect for the same reason as above.[4]The claimant also brings claims on behalf of C2, C3, C4 and C5 On behalf of the claimants listed in the Schedule to this judgment Ms Rogers presents claims that are based on identical facts as her claim and are made on the identical basis as described above. The multiple claim form attached to the claimant’s form ET1 lists as additional claimants Henry Tysoe, Ann Auldjo, Bridgitte Bishop, Natasha Gregory, Jane Hyder and Jamil Khan. I am not aware that there are any separate claim numbers in respect of those persons. At the hearing on 11 August the claimant stated that Jane Hyder had dropped out of the group action. On the same day as the 11 August hearing Ms Rogers sent the Tribunal an email citing Nicola Rogers, Natasha Dilloway, Jamil Khan, Brigitte Bishop and Richard Nuttall as the group of claimants with explanations of how the amounts claimed were arrived at for each claimant. That email, which cited Nicola Rogers, Natasha Dilloway, Jamil Khan, Brigitte Bishop and Richard Nuttall as claimants, stated “I have put this together to make it clearer what each person is claiming. Everybody is on here there are just 5 claims”. I am most grateful to the claimant Ms Rogers for the clarification and the data she has sent me and based on that I am content to accept those named in the claimant’s email of 11 August 2025 as the relevant group of claimants under a single claim number (that of C1). However, records show that in fact there are 8 group claimants (as detailed in the Schedule to this judgment). Since the claimants’ claims are all based on identical grounding facts and arguments and are therefore all dismissed for the same reasons, it is not material that I do not have data for amounts claimed for all claimants. I understand that Natasha Gregory is now Natasha Dilloway.[5]The claimant In her form ET1 Ms Rogers states the respondent to be the Redundancy Payment Service. R2 requested by way of an attachment to its form ET3 that HHGL Limited be confirmed as the first respondent because any judgment of the employment tribunal should be awarded against the employer. I have decided that it is correct that any judgment in favour of the claimant Ms Rogers in respect of the determination of the amount of the redundancy payment would indeed be against HHGL Limited, and on that basis have confirmed HHGL Limited as R1. However, any judgment in favour of the claimant Ms Rogers in respect of:(a) any unsatisfied payment for an employer’s payment pursuant to sections 166 and 167 of the Employment Rights Act 1996 and(b) unpaid notice pay on redundancy would be against R2 on a claim under sections 167 (in accordance with section 168) and 188 (pursuant to sections 182 and 188 of that Act) respectively of the Employment Rights Act 1996. This is accepted by R2 who said in its ET3 attachment “the SOS should be confirmed as the second respondent as he is not the former employer of the claimant(s) but acts as statutory guarantor for the payments”. On that basis I have confirmed the Secretary of State as R2. Issues:[6]R2 in the attachment to its form ET3 states as follows: “1) It is admitted that HHGL Limited t/a Homebase is insolvent within the meaning of sections 166 and 183 of the Employment Rights Act (“the Act”) 1996 having entered Administration on 13th November 2024. 2) It is accepted that the claimants were an employee (within the meaning of section 230(1) of the Act) of the company. It is not admitted that the applicants are entitled to receive any further payments under the provisions of sections 166, 167 and/or 184 of the Act as their rate of pay at the relevant calculation date was the rate provided by the insolvency practitioner. 3) So that the Redundancy Payments Service (“RPS”) can determine an employee’s entitlement and confirm that a company or individual has been declared formally insolvent, the IP must provide information about the employer and employees. The SOS has developed a standard set of questionnaires to guide IPs through the advice that the RPS needs to gather to assess claims. The RPS lodges the resultant debt in the insolvency and the IP must be able to agree the det for the SOS to make recoveries against the insolvent estate on behalf of the National Insurance Fund. 4) The claimants are therefore put to strict proof that they are entitled to a greater amount of a week’s pay than that used to calculate their statutory redundancy payment and compensatory notice payment in accordance with section 220 of the Act.”[7]From paragraph 6 above it can be seen that there is no dispute between the parties as to the insolvency status of R1 or as to the employment status of the group of claimants.[8]The issues to be decided are therefore:(a) must commission payments be included within the amount of a redundancy payment (see section 162 of the Employment Rights Act 1996)? and(b) must commission payments be included within amounts attributable to notice period for the purposes of a debt (see section 184(1)(b)) in the provisions for insolvency of employers (see Part XII of that Act)? Facts:[9]During and after the hearing on 11 August C1 Ms Rogers provided the Tribunal with the following documentation:(a) the email referred to at paragraph 4 above,(b) an email describing the amounts claimed by C1 Ms Rogers and the basis for those along with her P45 dated 05/02/2025 and her payslip for the period ending 30 November 2024;(c) a letter from the Insolvency Service dated 22 April 2025 notifying of a payment to C1 Ms Rogers for compensation for loss of notice in the amount of £3,108.24 and explaining how that was calculated,(d) an email from a Samran Khan to C1 Ms Rogers detailing the amounts claimed by Jamil Khan and the basis for those along with (i) his payslips for the periods ending 31 July 2024 to 31 October 2024 inclusive, (ii) his P45 dated 05/02/2025 and (iii) a letter from the Insolvency Service dated 6 February 2025 notifying of a redundancy payment to him of £12,135.58 and explaining how that was calculated,(e) a document headed “Homebase Showroom Commission Scheme” with a footer saying “Last updated: 28th April 2023”. At the top of the document there is “Design Consultant” and “All schemes operating in Homebase Showrooms – effective from 1st January 2022”,(f) an email from Richard Nuttall to C1 Ms Rogers detailing the amounts claimed by him and the basis for those along with (i) a photograph of his P45 dated 05/02/2025, (ii) his payslips for the periods ending 31 August 2024 to 31 October 2024 inclusive, and (iii) a letter from the Insolvency Service dated 28 January 2025 notifying of a redundancy payment to him of £9,553.20 and explaining how that was calculated,(g) an email from Natasha Dilloway (signed “Natasha Dilloway (previously Gregory)”) to C1 Ms Rogers detailing the amount claimed and the basis for this along with (i) her P45s for the years ending 5 April 2023 and 5 April 2024, (ii) her payslips for the periods ending 31 August 2024 to 31 October 2024 inclusive, (iii) a document indicating the commission paid to her by R1 in the period 31/05/2023 to 31/10/2024, and (iv) a letter from the Insolvency Service dated 11 February 2025 notifying of a redundancy payment to her of £5,863.08 and explaining how that was calculated,(h) an email from Brigitte Bishop to C1 Ms Rogers detailing the amount detailing the amount claimed and the basis for this along with her payslips for the period ending 30 November 2024 to 31 January 2025 inclusive, and(i) an email from C1 Ms Rogers to the Tribunal enclosing letters from the Insolvency Service to Mrs Brigitte Bishop dated 11 February 2025 and 25 March 2025 respectively notifying a redundancy payment to Mrs Bishop of £3,333.69 and explaining how that was calculated, and a payment to her for compensation for loss of notice of £1,430.30 and explaining how that was calculated.[10]There was no contract of employment available to the Tribunal in respect of any of C1 to C5 inclusive the claimants and none has been provided subsequently to
the hearing.
[11]At the hearing C1 Ms Rogers gave oral evidence regarding her hours and periods of work, her involvement in meetings with the insolvency practitioner before being made redundant, and the commission system that was operating. The facts emerging from her oral evidence are the following. Neither R1 nor R2 were present to dispute them and I have no reason to decline to accept them as true:(a) the company went into administration on 13 November 2024;(b) her last day of work for R1 was 31 January 2025, and notice of redundancy was provided to her 10 days previously;(c) her normal contracted hours of work were 39 hours per week;(d) staff were informed prior to the redundancy in meetings with the insolvency practitioner (Teneo) that the kitchen designers would not be awarded their average commission pay for the purposes of the forthcoming redundancy calculations;(e) her average total wage including commission for the 12 weeks preceding 31 January 2025 was £12,310, giving a weekly average of £1,025.83;(f) for the past three years she had earned a total of £45,000 per year consecutively;(g) from November 2024 to January 2025 the kitchen designer staff were paid their basic wage plus commission on customer contracts that were completed in October 2024. Commission from October 2024 was paid in December 2024 and January 2025;(h) as to notice pay, she worked 10 days of her notice period under normal pay, and then the remainder owed was paid by the redundancy payment service at a rate of £446.48 per week;(i) kitchen designed staff had historically always been paid either on a “basic plus commission” basis or, in periods when the commission system had been removed on a wage that had been increased so as to reflect what they would otherwise have earned by way of commission. The commission system had been removed about 5 or 6 years ago but then had been brought back approximately 4 years before the insolvency event. The commission guidelines had been updated in August 2023 and the update had never been discussed with staff;(j) there was a requirement to reach a threshold of at least £5,000 of sales per month in order for commission to become payable. Separately from that, there were monthly commission targets and these depended on how busy the business was at various times of the year. Missing the commission target for one month would not attract any action from management, however action would be triggered if the target were missed for over 3 months consecutively. C1 Ms Rogers recalled a colleague who had missed the target for 3 months and the consequence had been that a performance review was triggered, training records were checked and further training suggested, a 4-week supervisory target was put in place and there were weekly meetings with the person’s manager. C1 Ms Rogers said that she didn’t think her contract of employment said very much about the commission element but that she thought if a person persistently missed the monthly commission target, it would be possible for R1 to commence action that could potentially lead to the termination of their employment on grounds of competency.[12]C1’s Ms Rogers’ contentions as expressed in her oral evidence were that:(a) The kitchen designer job was specifically advertised “plus commission”, and this is standard in the industry. Nobody would have done the kitchen designer job for a wage that amounted solely to the basic salary, nor for the same salary as the standard shop floor workers earned;(b) the commission element of the job reflected that the kitchen designers had to be more skilled than other shop floor workers;(c) the basic salary element of the wage would on its own (without commission) be less than the minimum wage;(d) in light of these realities, the only way for a fair position to be reflected (namely, a position representing a true picture of the wages actually earned prior to redundancy) would be for her redundancy payment and the element of the notice pay paid by the redundancy payment service to be paid at a weekly rate calculated by way of an average of the last 12 weeks of her actual, total (basic plus commission) pay. This contention was expressed to be the same on behalf of C2, C3, C4 and C5 all the claimants.[13]I have no reason to disagree with C1’s Ms Rogers’ contentions as summarised in sub-paragraphs (a), (b) and (c) of paragraph 12 above. However, C1’s Ms Rogers’ contention at sub-paragraph (d) of that paragraph is solely a matter of law and that will be addressed later in this judgment.[14]C1 Ms Rogers conceded that the commission guidance document she had supplied (see paragraph 9(e) above) stated the commission scheme to be “noncontractual”. However, her argument was that it would not be fair if this statement as to non-contractual status governed the calculation of a week’s wage, since the basic wage alone (without commission) did not reflect the reality of what a week’s wage was for kitchen designers. Again, this contention is solely a matter of law and will be addressed later in this judgment.[15]The commission guidance document provided to the Tribunal by C1 Ms Rogers contains the following:(a) “How the Scheme works We operate a fantastic, uncapped commission scheme, meaning there is no limit to what you can earn. The higher your monthly sales, the grater your commission earnings will be. Commission is calculated on each month’s net sales total and paid in the following month’s pay run and is paid to all designers who achieve the minimum sales value of £15,000, which will be pro-rated for part-time workers. Net sales refer to cash on orders taken minus any remedials, cancellations or refunds and any discounts issued to customers”;(b) “Commission reporting You will have access to a dashboard in Power BI which will show the sales and commission earned for the month, also how far away from the next commission band. The figure will be shown in red whilst sales remain below the eligibility level and will turn green as soon as this has been achieved”;(c) “Discounting Any additional discounts (QPM and Markdown) above the headline offer will be deducted from the total order value and will reduce the amount of the commission you could earn. Remember, every £1 given away in customer discount is £1 less towards achieving the next commission band”;(d) “Order cancellations and refunds Sometimes customers change their minds and orders are cancelled or need to be refunded. If this happens, your commission will be recalculated for the month within which the sale occurred, the commission earnt on the refunded order will be deducted from the following month's commission payment. Please refer to the "Commission Scheme General Guidelines" document for more information”;(e) “Process The Store Manager will approve the commission payments each month and discuss it with you in your monthly review. Store Managers have the authority to withhold or revoke commission payments from team members, any commission deductions will show as a clawback in the commission report. Please speak to your Store Manager for more details on the commission process”.[16]The commission guidance document had a section explaining what products fell within the scheme. It also had sections (one for full-time working and one for parttime working) showing five bandings for the percentage of commission earnings attributable to sales achieved in the month. Those showed, for full-time workers, 0% for sales up to £4,999.99, 4% for sales up to £14,999.00, 5% for sales up to £24,999.99, 6% for sales up to £34,999.99, 7% for sales up to £49,999.99 and 8% for sales over £50,000. It then had an example which for a full-time worker said this: “Example The amount of commission you earn is in your hands, if during the month you take the following sales, you will earn: Sales Total of £4,000 (Band 1) = £0 commission (not achieved £5,000 threshold) Sales Total of £20,000 (Band 3) = £750 commission (£20,000 - £5,000 band 1 = £15,000 commissionable sales at 5% Sales Total of £36,000 (Band 5) = £2,170 commission (£36,000 - £5,000 band 1 = £31,000 commissionable sales at 7%) If your ambition is to get into the top band every month, this could be worth a minimum of £43,200 in commission a year! What this means for your Annual Earnings In addition to your base salary, if you achieve annual sales of:•£300,000 you will earn £14,400 in commission (band 4 each month)•£400,000 you will earn £20,400 in commission (band 4 each month)•£500,000 you will earn £30,800 in commission (band 5 each month)•£600,000 you will earn £43,200 in commission (band 6 each month)”.[17]In relation to part-time workers, the commission guidance document said “If a team member is working part-time, then their commission scheme thresholds will be amended on a pro-rata basis depending on contracted hours worked. This will be done automatically”. That was followed by an example for a design consultant working “19.5 hours per week (contracted hours) so 0.5 FTE (Full Time Equivalent)”, where the “commission bandings will be multiplied by 0.5”, giving bandings of band 1 sales £0 to £2,499.99 0%, £2,500 to £7,499.99 4%, £7,500 to £12,499.99 5%, £12,500 to £17,499.99 6%, £17,500 to £24,999.99 7%, and £25,000 and over %8%.[18]The final part of the guidance document said this: “IMPORTANT• The Scheme is non-contractual, and payments do not form part of the terms and conditions of employment.• All Scheme payments are made at the discretion of the Company's Board of Directors.• Criteria, percentages, and other rules applying to the Scheme may be reviewed by the Board at any time, business circumstances may dictate that the Board changes the scheme without noticе.• The company reserves the right to revise the scheme at any time, as per business requirements. Indeed, the company reserves the right to suspend, amend or revoke the Scheme (either in whole or part) at any time and without prior notice.• Except only where the Board has pre-authorised in writing some other arrangement, there can be no deviation from the rules of the Scheme as set out herein.• Commission payments will only be paid where the minimum Sales value has been achieved.• Please refer to the Commission Scheme General Guidelines for more information IMPORTANT: This document is subject to change at management discretion with no prior notice.”[19]The “Commission Scheme General Guidelines” have not been provided to the Tribunal.[20]Further facts that can be derived from the documents that C1 Ms Rogers supplied to the Tribunal are as follows:(a) P45s did not distinguish between basic pay as opposed to commission pay, nor did they mention “pay including commission”. They merely stated “total pay to date”;(b) payslips split “pay” into “regular pay” which was described as “base salary”, “variable pay” which was described as “commissions” including “holiday supplements”, and “deductions” which contained PAYE tax, National Insurance and pension contributions.[21]On the basis of the information available to me taken together with C1’s Ms Rogers’ oral evidence I find the following as facts:(a) C1, C2, C3, C4 and C5 the claimants were employed by R1 as kitchen designers, remunerated via a wage that comprised a basic pay element which was always paid at a fixed amount, and a commission element (i) which was paid if their monthly sales exceeded £5,000 and (ii) whose amount depended on which “band” their monthly sales achieved after deductions for customer discounts, refunds or cancellations;(b) C1, C2, C3, C4 and C5 the claimants worked normal, fixed hours and their remuneration did not vary according to their time of work;(c) their commission element is properly described as a “wage” because it was a normal part of their remuneration;(d) R1 was obliged to pay the commission element in accordance with the commission guidance until and unless the scheme was changed or revoked by its Board;(e) except insofar as the commission bandings and percentage rewards were prorated so as not to disadvantage part-time workers, the commission arrangements did not vary with the amount of work done per hour or week, and were not based on any productivity measure;(f) under the commission scheme, the remuneration of C1, C2, C3, C4 and C5 claimants’ remuneration was not dependent on “output” or “productivity”. Instead, it operated as a wholly “result-based” payment system;(g) although R1 was obliged to pay C1, C2, C3, C4 and C5 the claimants commission payments as part of their wage if they qualified under the rules of the commission scheme in force at the time and in that sense the commission was an entitlement of theirs, that entitlement was not an entitlement under their contracts of employment. This is because R1 would have been able to vary the commission scheme without notice at any time without altering the terms of their contracts of employment;(h) even if there were monthly performance targets in place outside of the terms of the commission scheme rules that could eventually lead to dismissal for lack of competence if persistently not adhered to, this did not make the commission payments a contractual entitlement;(i) however, notwithstanding (g) and (h) above, the commission payments were intrinsically linked to the performance of tasks which C1, C2, C3, C4 and C5 the claimants were obliged to carry out under the terms of their contracts of employment. The Relevant Law:[22]The liability of an employer to pay a redundancy payment to an employee derives from section 135 of the Employment Rights Act 1966 (“the Act”) as follows: “135 The right (1) An employer shall by pay a redundancy payment to any employee of his if the employee- (a) is dismissed by the employer by reason of redundancy, or [(b) not relevant here].”[23]The liability of the Secretary of State to make a redundancy payment derives from the section 166 of the Act which provides as follows: “166 Applications for payments(1) Where an employee claims that his employer is liable to pay to him an employer’s payment and either— (a) that the employee has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused or failed to pay it, or has paid part of it and has refused or failed to pay the balance, or (b) that the employer is insolvent and the whole or part of the payment remains unpaid, the employee may apply to the Secretary of State for a payment under this section.(2) In this Part “employer’s payment”, in relation to an employee, means— (a) a redundancy payment which his employer is liable to pay to him under this Part, [(aa) not relevant here], or [(b) not relevant here].”[24]Section 167 provides as follows: “167 Making of payments(1) Where, on an application under section 166 by an employee in relation to an employer’s payment, the Secretary of State is satisfied that the requirements specified in subsection (2) are met, he shall pay to the employee out of the National Insurance Fund a sum calculated in accordance with section 168 but reduced by so much (if any) of the employer’s payment as has already been made.(2) The requirements referred to in subsection (1) are- (a) that the employee is entitled to the employer’s payment, and (b) that one of the conditions in paragraphs (a) and (b) of subsection (1) of section 166 is fulfilled […].”[25]By section 168(1)(a) of the Act, the amount payable under section 167 is the amount of the redundancy payment or part of it.[26]The liability of the Secretary of State to pay notice pay to an employee on insolvency of the employer is derived from section 182 of the Act which provides as follows: “182 Employee’s rights on insolvency of employer. If, on an application made to him in writing by an employee, the Secretary of State is satisfied that—(a) the employee’s employer has become insolvent,(b) the employee’s employment has been terminated, and(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies, the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.”[27]Section 184 of the Employment Rights Act 1996 applies section 182 to arrears of pay; accrued holiday pay and statutory notice pay (but subject to maximum amounts).[28]The way in which a redundancy payment is calculated for the purposes of section 167(1) of the Act is the same as the method of calculation that an employer is required to use when paying a redundancy payment pursuant to section 135 of the Act. This is given by section 162 of the Act as follows: “162 Amount of a redundancy payment (1) The amount of a redundancy payment shall be calculated by- (a) determining the period, ending with the relevant date, during which the employee has been continuously employed, (b) reckoning backwards from the end of that period the number of years of employment falling within that period, and (c) allowing the appropriate amount for each of those years of employment.”[29]By section 162(2) of the Act, the unit amount for the “appropriate amount” referred to in section 162(1) is a “week’s pay”.[30]Where an employee works normal hours that do not differ from week to week or over a longer period the definition of “a week’s pay” is governed by section 221 of the Act which provides as follows: “221 General(1) This section and sections 222 and 223 apply where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date.(2) Subject to section 222, if the employee’s remuneration for employment in normal working hours (whether by the hour or week or other period) does not vary with the amount of work done in the period, the amount of a week’s pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.(3) Subject to section 222, if the employee’s remuneration for employment in normal working hours (whether by the hour of week or other period) does vary with the amount of work done in the period, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks ending- (a) where the calculation date is the last day of the week, with that week, and (b) otherwise, with the last complete week before the calculation date.(4) In this section references to remuneration varying with the amount of work done includes remuneration which may include any commission or similar payment which varies in amount.”[31]Section 222 of the Act applies where under the contract of employment an employee is required to work during normal working hours on days of the week, or times of the day, which differ from week to week or over a longer period, so that the remuneration payable for, or apportionable to, any week varies according to the incidence of those days or times. I have not set it out here because there is no dispute in this case that C1, C2, C3, C4 and C5 the claimants worked normal working hours which did not differ from week to week or over a longer period.[32]Section 223 of the Act relates to the calculation of the “hourly wage”.[33]For the purposes of notice pay pursuant to a debt under section 182 of the Act, the right to payment attaches to the right to a minimum period of notice under section 86 of the Act. There again, the liability for payment under section 87(1) relates to the “period of notice” which under section 86 is given in terms of units of a “week’s notice”. The definition of a “week’s pay” in section 221 of the Act therefore applies equally here.[34]The legal issues to be decided in this case (see paragraph 8 above) are both dependent on what part of section 221 of the Act applies to C1, C2, C3, C4 and C5 the claimants and the ramifications of that as explained by relevant case law. In short (further explained in detail in the paragraphs that follow) I can summarise it like this: Section 221(2) of the Act provides for a calculation of a “week’s pay” that is the amount of a whole week’s work payable under the contract in force as at the date of calculation. Section 221(3) provides for a calculation that averages out the amount of a week’s pay over the period of 12 weeks ending with the calculation date. By virtue of express provision in section 221(4) the section 221(3) calculation can include commission amounts. But the section 221(2) calculation is unlikely to include varying commission payments because it does not allow for remuneration fluctuating with amounts of work done. Whether a person falls into section 221(2) or 221(3) depends on whether they work fixed hours or variable hours. This question has been the subject of significant scrutiny by the higher courts, by which case law I am bound.[35]Paragraph 863 of the authoritative textbook Harvey on Industrial Relations explains it like this: “…there are several formulae for calculating a week's pay. Which is the appropriate formula depends on whether there are normal working hours or not. If there are normal working hours, the applicable formula depends secondly on whether the employee works on rotating shifts or certain other non-standard working patterns, or not (hereinafter distinguished by the labels 'rota workers' and 'regular workers'). If the employee is a regular worker, the formula depends thirdly on whether his or her remuneration varies with the amount of work done or not (hereinafter labelled 'variable rate' and 'flat rate').”[36]Harvey goes on at paragraph 865 to explain that the distinction between flat-rate and variable-rate employees: “…has twice been the subject of significant reported judicial consideration. The first case, Evans v Malley Organisation (t/a First Business Support) [2002] EWCA Civ 1824, [2003] IRLR 156, [2003] ICR 432, concerned a sales executive's remuneration package comprising a modest basic salary and commission on sales, the latter forming the major part of the employee's total pay. Although the commission scheme was unusual in that commission would not be paid until typically nine months after a sale (the 'product' was employment advisory services), this feature does not, it is submitted, affect the general application of the case to partly commission-based remuneration packages. The issue in the case was whether the commission element rendered this a contract under which Mr Malley was to be treated as a variable rate worker (with the result that commission would be taken into account in calculating a week's pay for the purposes of statutory holiday pay) or not.[37]The reference to “Mr Malley” as quoted immediately above is what appears in the online version of Harvey. Yet it appears to me that the reference should be to “Mr Evans”.[38]Harvey summarises in relation to the calculation formula for flat-rate section 221(2) workers at paragraph 882 as follows: “the formula does exclude payments, such as commission or bonus, which are not part of the contractual remuneration — not because they are non-contractual (although that may be the case) but because they are not part of the fixed remuneration due to the employee. The potential implications of this are clearly illustrated by the case of Evans v Malley Organisation (t/a First Business Support) [2002] EWCA Civ 1824, [2003] IRLR 156, [2003] ICR 432.”[39]The Evans case concerned the calculation of a week’s pay for the purposes of statutory holiday pay. Mr Evans’ contract provided for his rate of holiday pay to be his normal basic rate of £10,000 per year. He was also entitled to commission under his contract, which arose and was payable as a result of successful efforts to induce customers to sign up for British Gas’s energy products. His claim was that his holiday pay should have been his average salary (by reference to his basic salary and commission), not just his basic salary, which is all his employer paid him. The basis for his claim was that he fell within section 221(3) of the Act, meaning that his “week’s pay” calculation should be an average of his last 12 weeks’ total remuneration including his commission payments that “varied”.[40]The employment tribunal dismissed Mr Evans’ claim, holding that he was remunerated for employment in normal working hours and that his varying commission payments did not mean that his remuneration “varied with the amount of work done in the period”, therefore he fell within section 221(2) of the Act and not within section 221(3) of the Act. On Mr Evans' appeal against the employment tribunal’s decision, the Employment Appeals Tribunal (EAT) agreed with the employment tribunal’s interpretation of sections 221(1) to (3), with His Honour Judge Wilkie QC saying: “The amount of work done in the period of normal working hours did not vary in the sense that payments were not based on the amount of work done. Rather payment of commission was based on the outcome of that work, whether fortuitous or due to good performance. Therefore, as these three [subsections] stand, one would have thought that the natural meaning was that commission would not be included as part of the payment, so that the averaging out provisions of subsection (3) would not apply.”[41]However, the EAT reversed the decision of the employment tribunal by finding that section 221(4) counteracted or overrode the natural meaning of section 221(3), in the sense that all remuneration including commission payments had to fall within section 221(3) regardless of whether it varied with the work done, and that the effect of that was to bring Mr Evans’ case back within the averaging out provisions of section 221(3).[42]On further appeal the Court of Appeal in Evans affirmed that sales commission remuneration did not vary with the amount of work done in a period but disagreed with the EAT’s decision about the effect of section 221(4). In the Court of Appeal Pill LJ said at paragraphs 23 to 26 of his judgment: “23. The distinction between subsection (2) and subsection (3) of section 221 turns on whether or not the employee's remuneration does or does not vary with the amount of work done in the normal working hours. I am unable to conclude that it does. Work is done and the amount of work does not depend on the number of contracts obtained. Time spent unsuccessfully to persuade a client to sign a contract is as much work as a successful encounter with a client. I am not able to read the expression “amount of work done” as meaning that amount of work and that part of the work which achieves a contract. The amount of work resulting in a contract may vary, but the result achieved by the work is a different concept from the act of working. 24. In my judgment subsection (4) does not bear upon the issue whether a contract falls within subsection (2) or (3). That must first be determined in accordance with the test plainly stated in the section and already identified. Subsection (4) is not relevant to that decision. What subsection (4) and its predecessors achieve is to make clear that once the categorisation is made, the relevant remuneration may include commission or similar payments such as a bonus. It is not otiose because it is easy to envisage situations in which remuneration does vary with the amount of work done, once a specified level of productivity has been achieved. The reference to commission in subsection (4) does not require or permit all contracts in which commission is a part of the remuneration to be placed within subsection (3). … 26. What the use of the averaging method does tend to confirm, however, is the fit between subsection (3) and pieceworking in the traditional sense. Where there are marked variations in the amount of work done as between one week and another fairness can be achieved by calculating the amount of holiday pay by reference to an average. That objective is a fair but limited one. Its inclusion in the statute does not require that contracts such as the present should be forced into the subsection (3) category.”
Judge LJ said at paragraphs 35 to 37 of his judgment in the Court of Appeal Evans case:
[43]“35. Mr Evans was of course expected to work conscientiously, and if he did it was hoped, both by him and his employers, that he would be successful in obtaining contracts. For these efforts he was paid his basic salary, which was due to him whether he succeeded in obtaining any contracts or none. If by working conscientiously he also achieved what it was hoped that he would achieve, he would then, but not otherwise, have earned commission in addition to his salary. Therefore the payment of commission did not depend on the length of his working week, and his remuneration for his employment was linked, not with the amount of work which he did, but with its success. Naturally it was hoped, indeed anticipated, that harder work and more skilful salesmanship would increase the number of contracts obtained by Mr Evans and so increase his resulting commission. But taken on their own, admirable though they are, hard work and skill which produced no contracts entitled him to no more than his basic salary. 36. For the purposes of section 221 of the Employment Rights Act 1996 Mr Evans's remuneration did not vary with the amount of work he did during his working week. Any commission due to him was payable by virtue of earlier success, usually many months previously. It was unconnected with the amount of work he did during the 12-week period before his employment came to an end, which forms the basis of any calculation under section 221(3), and on which the decision of the Employment Appeal Tribunal was founded. 37. Unlike the appeal tribunal, I do not believe that section 221(4) overrides section 221(3) or, as seems to be implicit in its decision and was supported in argument by Mr Cohen, that cases in which commission forms part of a remuneration package must automatically be treated as falling with section 221(3). Rather, section 221(4) amplifies section 221 and, where remuneration does in fact vary with the amount of work done, enables commission and bonuses and similar payments to be included in the calculation of an employee's week's pay.”[44]Hale LJ said at paragraphs 43 of her judgment in the Court of Appeal Evans case: “43. There are several good reasons to conclude that although this remuneration varied it did not vary “with the amount of work done”:(i) “work done” would ordinarily mean tasks undertaken, such as researching potential clients, making telephone calls, writing letters, meeting potential clients: it would not mean “success achieved”. Mr Cohen quite rightly says that work done leads to success achieved: but that does not mean that the words have the same meaning.(ii) The ordinary meaning of the “amount” of work done would refer to its quantity and not to its quality or its results.(iii) The variation in remuneration in this case was not “with” the amount of work done in the period but with success achieved as a result of work done in a completely different period, usually nine months earlier.(iv) The concept of averaging over 12 weeks is difficult to fit with the concept of success fees relating to a completely different period”, and at paragraph 45 of her judgment after having cited the basis of the EAT decision quoted at paragraph 39 above, “45. There is nothing in section 221(4) to change that. This is clearly defining remuneration for the purpose of what is included as remuneration but that still has to be within the overall criterion of varying with the amount of work done.”[45]It is clear to me that the EAT and the Court of Appeal in Evans both concluded that a sales representative's commission does not vary according to the work done, but according to the results.[46]As to the meaning of section 221(4), Harvey at paragraph 887 summarises the meaning of Evans as: “[Section 221(4)] confirms that in cases where the rate of remuneration does vary with the work done, it is [section 221(3)] which applies even if there is an element of commission or similar payments”, and interprets the net result of Evans as being that: “The end result is that in most cases, the calculation of a week's pay is unlikely to include commission or bonus payments where these are driven by results, but will include traditional piecework payments.”[47]I agree with the description of the net result of Evans as set out by Harvey immediately above. In my judgment, that result is clearly stated at paragraph 37 of Judge LJ’s judgment (see paragraph 43 above) and paragraph 45 of Hale LJ’s judgment (see paragraph 44 above).[48]The other case reported in Harvey concerns piecework and productivity payment systems. The dictionary definition of “piecework” is “work for which the amount of pay depends on the number of things finished rather than on the time spent making them”. A productivity payment scheme could be described as a system that links an employee’s pay to their level of output or performance. The case of Adshead v May Gurney Ltd UKEAT/0150/06, [2006] All ER (D) 388 (Jul) decided that “… where pay is related to output and output is in turn significantly connected with level of performance, then it can properly be said that the pay varies with the amount of work done”. This is consistent with the judgment of Pill LJ in his paragraph 26 of the Evans judgment quoted at paragraph 42 above.[49]The Evans case concerned a “week’s pay” for the purposes of statutory holiday pay. Entitlement to periods of leave and to payment for the same is governed by regulations 13, 13A and 15B of the Working Time Regulations 1998 (“the 1998 Regulations”). Regulation 16 of the 1998 Regulations says that sections 221 to 224 of the Act apply for the purposes of determining the amount of a “week’s pay” for the purposes of regulations 13, 13A and 15B. But when the 1998 Regulations apply sections 221 to 224 of the Act for the purposes of regulation 16, they apply a version of sections 221 to 224 that is modified by regulation 16(3ZA) to (3ZG). The effect of the regulation 16(3ZA) to (3ZG) modifications is to expand sections 221 to 224 in a way that is different from the way that they apply outside of the context of holiday pay.[50]In particular, the position currently expressly stated in regulation 16(3ZA)(a) of the 1998 Regulations is that for the purposes of holiday pay as transposed by way of the Working Time Directive only (i.e. that guaranteed by regulation 13 of the Regulations), “payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract” must be “included when determining the amount of a week’s pay for the purposes of” the calculation of holiday pay in regulation 16. Therefore, the “expanded” meaning of sections 221 to 224 of the Act for the purposes of holiday pay does not apply for that part of the holiday pay entitlement deriving solely from UK domestic law (namely regulation 13A). Regulation 16(3ZB) is then explicit as to that discrepancy in calculation as between the entitlement deriving from UK domestic law and the entitlement deriving from EU Law.[51]However, the position as now legislated for in regulation 16(3ZA) of the 1998 Regulations was not always previously understood to be the case. The matter was settled in the case of British Gas Trading Ltd v Lock [2016] IRLR 316, [2016] ICR 503; [2016] EWCA Civ 983, [2016] IRLR 946, [2017] ICR 1, the result of which is now codified in regulation 16(3ZA)(a) of the 1996 Regulations.[52]The British Gas case decided that, although in accordance with Evans commission did not fall to be included in the section 221(2) calculation for the purposes of holiday pay when viewed through the lens of UK domestic law, Article 7 of the Working Time Directive required that section 221(2) as incorporated into regulation 16 of the 1998 Regulations had to be read for the purposes of holiday pay as if (as explained in Harvey at paragraph 867) words were added “deeming that where a worker is remunerated in part by commission, for the purpose of calculating the rate of a week's pay he or she falls into the category of an employee whose pay does vary with the amount of work done (ie a section 221(3) employee)”. The same effect is now achieved, in different words, via the insertion of regulation 16(3ZA)(a).[53]In the British Gas case Mr Justice Singh said at paragraphs 48 and 100 of his judgment: “48. the court [in Evans] was […] answering essentially the […] question […] whether under the WTR and the incorporated provisions of the ERA , Mr Evans's holiday pay should have been calculated by reference to his average (or normal) remuneration and not just his basic salary. That required the court to consider whether it was possible to construe the legislation as entitling him to what might be called a ‘normal remuneration’ calculation; and the court held it was not. 100. Turning to Evans , I have said that I am satisfied that it shows that, if the WTR and the provisions of the ERA they incorporate are interpreted exclusively through a domestic lens, Mr Lock is not entitled to holiday pay calculated by reference to his ‘normal remuneration’, that is by reference also to the commission he usually earns.”[54]In my judgment, the net result of the Evans and British Gas cases taken together along with section 16(3ZA)(a) of the 1998 Regulations can be summarised like this:(a) British Gas does not overrule or invalidate Evans insofar as Evans governs the meaning of sections 221 to 224 of the Act for the purposes of the calculation of “a week’s pay” outside of the context of holiday pay;(b) outside of the holiday pay context, section 221(2) of the Act applies in any case where remuneration does not vary with the amount of work done (as distinct from the product of the work), whereas section 221(4) of the Act confirms that in cases where the rate of remuneration does vary with the work done, it is section 221(3) which applies even if there is an element of commission or similar;(c) in the context of holiday pay, the position is now codified in regulation 16(3ZA)(a) of the 1998 Regulations which explicitly brings commission into the calculation for a “week’s pay”;(d) outside of the holiday pay context, the calculation of a “week’s pay” cannot usually be construed as entitling an employee to “average or normal remuneration”, that is, remuneration by reference to the commission usually earned as opposed to just a basic salary, where remuneration does not vary with the amount of work done;(e) the remuneration of an employee who works with a basic wage and earns a sales commission, on a pattern where s/he has fixed hours of work per week, does not vary according to the work done and hence falls within section 221(2) as opposed to section 221(3). This is primarily because in a system like this the commission is results-based instead of being referable to the amount of time worked. In the words of Pill LJ in Evans, “work is done and the amount of work does not depend on the number of contracts obtained” and in the words of Judge LJ in Evans “the payment of commission [does] not depend on the length of [the] working week, and […] remuneration for […] employment [is] linked, not with the amount of work [done], but with its success”;(f) in a productivity payment scheme that links an employee’s pay to their level of output or performance, where pay is related to output and output is in turn significantly connected with level of performance, then it can properly be said that the pay varies with the amount of work done. Discussion and conclusions:[55]I found at paragraph 21(b) above that C1, C2, C3, C4 and C5 the claimants worked normal, fixed hours and their rate of baseline remuneration did not vary according to their times of work.[56]I also found at paragraph 21(e) above that in the cases of C1, C2, C3, C4 and C5 the claimants’ cases, except insofar as the commission bandings and percentage rewards were pro-rated so as not to disadvantage part-time workers, the commission arrangements did not vary with the amount of work done per hour or week. It is apparent to me from the commission guidance document provided by C1 Ms Rogers that the aim of the pro-rating was to place part-time workers in the same position as full-time workers in terms of the commission that could be earned.[57]I also found at paragraph 21(f) above that the commission system under which C1, C2, C3, C4 and C5 the claimants worked was clearly a results-based system. The evidence of C1 Ms Rogers and the commission guidance document that she provided made this clear.[58]The facts of the cases of C1, C2, C3, C4 and C5 the claimants’ cases are in my judgment markedly similar to the facts of the cases in the cases of Evans and British Gas. In the same way as in those cases, in the cases of C1, C2, C3, C4 and C5 the claimants’ cases commission was generated on the basis of the results of the claimants’ work as opposed to the amount of work done. The position in terms of pro-rating for part-time workers supports this conclusion because fulltime employees could not earn more than part-time workers solely by virtue of their longer working hours. The words of Pill LJ and Judge LJ quoted in paragraph 54(e) above apply in my judgment equally to the cases of C1, C2, C3, C4 and C5 the claimants’ cases.[59]Since C1, C2, C3, C4 and C5 the claimants are not claiming any amount in respect of holiday pay, the enhanced position set out in the British Gas case as required by EU law and now codified in regulation 16(3ZA)(a) of the 1998 Regulations does not apply to them.[60]Although the commission system operating for C1, C2, C3, C4 and C5 the claimants was in my view clearly intended to drive incentive to sell and the earnings benefits increased in line with increasing performance, in my judgment the scheme could not be rightly termed as a productivity payment scheme. This is because the commission payments were, notwithstanding the level of performance of the claimants, still pegged to results. “Results” are distinguishable from “output”. In a productivity scheme that, for example, measures pay by the number of “widgets” produced, a “widget” is produced even if the worker was inefficient in terms of time spent producing it. The widget produced is “output”. In contrast in a results-based commission scheme, the same amount of work done by a person in a given time may or may not produce an “output” in terms of a customer contract sealed. In the words of HHJ Wilkie (see paragraph 40 above) the sealing of a customer contract by a salesperson may be “[on the one hand] fortuitous or [on the other hand] due to good performance”. It is not “fixed”.[61]Applying the case law described above to the facts of the case as I have found them, I am driven to the following conclusions:(a) for the purposes of redundancy payments by R1 pursuant to section 135 of the Act, statutory guarantee payments by R2 pursuant to section 167 of the Act and notice pay by R2 pursuant to a debt under section 182 of the Act, the remuneration of C1, C2, C3, C4 and C5 claimants’ remuneration in terms of a “week’s pay” falls within section 221(2) of the Act because even taking into account their commission payments their remuneration did not vary with the amount of work done;(b) a calculation based on an average of 12 weeks’ pay ending with the calculation date cannot apply to C1, C2, C3, C4 and C5 any of the claimants. This is because their remuneration does not fall within section 221(3) of the Act;(c) although in theory it is not impossible for section 221(2) of the Act to encompass a system that might on certain facts include commission (Evans does not necessarily wholly rule that out), in line with British Gas I have decided that the working system under which C1, C2, C3, C4 and C5 the claimants were working cannot be construed as entitling them to “average or normal remuneration” by reference to the commission usually earned as opposed to just a basic salary. This is because their remuneration did not vary with the amount of work done. In the words of Harvey, their commission was not part of their “fixed remuneration”;(d) this means that in accordance with section 221(2) of the Act the correct “week’s pay” calculation for C1, C2, C3, C4 and C5 the claimants is the basic amount (excluding commission) which was payable by the employer under the contract of employment in force on the calculation date if they worked throughout their normal working hours in a week. Their commission amounts for a working week were not fixed amounts because they depended on success or results, not on time spent working during that week;(e) the amounts paid by the Insolvency Service on behalf of R2 were in line with section 221(2) of the Act as described in (d) immediately above.[62]The claimants’ appeal is therefore dismissed.[63]I indicated to C1 Ms Rogers at the hearing on 11 August that I had not made a decision in the hearing and that I would reserve the decision and the judgment. This is a finely balanced decision and has not been an easy decision for me, not least because at the hearing I indicated to C1 Ms Rogers that on the face of it I did not see why commission payments were not “wages”. In my findings at paragraph 21(c) and 21(i) above I have not resiled from my preliminary opinion at the hearing that the commission payments were “wages”. However, on close research as explained in this judgment above, the position in section 221 of the Act is not as clear cut as “wages or not wages” but is more nuanced as explained above. The status of the claimants’ commission as “wages” would have assisted them if their claim had been for unauthorised deductions from wages (a claim for which on the facts is not available to them) but does not assist them in relation to a “week’s pay” for the purposes of section 221 of the Act.[64]I do understand, acknowledge and very much sympathise with C1’s Ms Rogers’ contentions as expressed in paragraph 12(a), (b) and (c) above and as stated above I have no reason to disbelieve them. However, that said, in my judgment the case law as explained above is clear. That case law binds me, and in my judgment does not allow me to accept the position for which C1 Ms Rogers contends.