Yesterday, the European Court of Justice (ECJ) held that where a worker’s remuneration included sales generated commission, the holiday pay arrangements had to reflect this in order to ensure that the worker was not financially worse off for taking the leave (Lock v British Gas Trading Ltd).
When Mr Lock, a sales consultant, was on annual leave he was paid his basic salary plus the commission from previous sales that fell due to be paid. So he was paid commission during the holiday period. However, he claimed that he still suffered a loss as he only received a reduced income in the months following his return from annual leave, simply because he had not been able to secure sales and generate commission whilst he was on holiday.
The ECJ agreed that he had suffered a loss and found this was contrary to the EU Working Time Directive (WTD) even though the actual loss was suffered some weeks after he had been on holiday. It was considered that if this was allowed, it may deter workers from exercising their right to take annual leave which was contrary to the health and safety aims of giving rights to paid holiday. As to how, in practice, holiday pay can be calculated so as to avoid the worker being disadvantaged, the ECJ said it would be for the Employment Tribunal to determine, taking into account the principles of their decision and the national laws governing holiday pay.
In practice, it seems certain that going forward employers who pay commission will have to review their pay systems to take into account the average amount of commission payments received over a period of time of 12 weeks or even longer. It will then be necessary to ensure that the worker who takes leave receives at least that average in the weeks following their return to work.
The ECJ’s decision comes at a time when two cases* are pending before the Employment Appeal Tribunal (EAT) regarding the exclusion of overtime payments from holiday pay. In both cases, Employment Tribunals have held that overtime must be taken into account when calculating statutory holiday pay. If these decisions are upheld on appeal at the end of July, it will mean that wage bills in relation to holiday pay will be substantially higher for many businesses than had previously been thought. Even worse, it may mean that claims for back pay could go back over several years to the start of employment.
*Neal v Freightliner Ltd and Fulton and another v Bear Scotland Ltd