Holiday pay: The European Court rules commission should be taken into account when calculating holiday pay - DAC Beachcroft

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Holiday pay: The European Court rules commission should be taken into account when calculating holiday pay

Published On: 23 May 2014

In a judgment issued yesterday the Court of Justice of the European Union ("CJEU") has decided that employers should take commission into account when calculating holiday pay.

Facts and reasoning

Mr Lock is a sales consultant for British Gas whose pay consists of two elements, basic pay and commission. His commission is based on sales achieved and fluctuates from month to month. It is paid several weeks or months after a sale is concluded and makes up approximately 60% of his remuneration. Mr Lock was on annual leave for two weeks over Christmas 2011 and he was unable to make any sales during this period. While on annual leave, he was paid his basic salary plus the commission from previous sales that fell due during the period. However, Mr Lock then suffered a reduced income in the months following his return to work because he did not generate commission whilst he was on annual leave.

Mr Lock brought a claim for holiday pay in the Leicester Employment Tribunal. Before giving its final judgment, the tribunal referred the question of whether commission should be included in the calculation to the CJEU.

In January we reported that he Advocate General of the CJEU had given an opinion in Mr Lock's favour. Although not obliged to do so the full CJEU has now followed that opinion.

Commission was part of Mr Lock's normal remuneration and was intrinsically linked with tasks he was required to perform under his contract of employment with British Gas. That means the commission should be included in his total remuneration for the purposes of calculating his holiday pay.

The CJEU rejected the argument of British Gas and the UK Government that it was sufficient that Mr Lock actually received payment of commission from prior sales during annual leave. They said that to suffer a financial consequence as a result of taking annual leave (namely the inability to earn commission during it) could deter employees from taking annual leave. This would be incompatible with a fundamental purpose of the European Working Time Directive (namely to enable employees to take the prescribed leave entitlement). The Court commented that there would be a particular risk that employees would be deterred from taking leave in cases, such as this one, where commission represents a large proportion of total remuneration received by the worker.

The CJEU said that it is for the national courts to determine how to calculate the commission to which the worker is entitled in respect of his annual leave.

CJEU decisions and the WTD are directly effective on public but not private sector employers. However our courts and Tribunals are required to interpret UK law in line with them as far as possible.

What this means for employers

This case will now go back to the Leicester Employment Tribunal and we may receive further guidance on how payment for annual leave and commission should be calculated in these circumstance. In the meantime, employers should consider their own annual leave and commission arrangements in light of this decision.

Z.J.R Lock v British Gas Trading Limited