Date:

CJEU rules holiday pay should include commission

There is a new kid in town when it comes to the elusive question of holiday pay and it now looks like he is here to stay…

Following a string of judgments at Employment Tribunal level which bring into question the way holiday pay is calculated in the UK, we have been waiting with trepidation for some higher authorities to shed some light on this conundrum. The first judgment on this issue has now been made by the Court of Justice of the European Union (CJEU) in the case of Lock v British Gas Trading Limited.

The CJEU has followed the Advocate General’s opinion and held that commission payments do fall within the concept of normal pay and employers therefore should take commission payments into account when calculating a worker’s holiday pay.

The case

In this case, Mr Lock’s salary comprised a basic salary and commission payments which were based on his sales. His commission made up over 60% of his total remuneration. When he was on holiday Mr Lock received an average of his pay over the preceding 12 weeks before he took the holiday.

However, he could not make any sales whilst on holiday and therefore he pursued a case to Tribunal on the basis that he suffered a loss in commission because it dropped in the period after he returned from holiday.

British Gas and the UK Government argued that under UK legislation and practice the objective of the Working Time Directive (WTD), to pay normal remuneration during holiday, was achieved. This was because during his period of paid annual leave Mr Lock did receive a salary comparable to that earned during the 12 weeks preceding the annual leave, which comprised his basic salary and commission. However, the problem, as British Gas conceded at the hearing, was that a worker does not generate any commission during their period of holiday and as a consequence the worker is paid reduced remuneration comprising only his basic salary upon his return to work after annual leave. The result is that the adverse financial impact may deter the worker from actually taking annual leave. The Advocate General emphasised in his opinion that this is all the more likely to act as a deterrent in a case like Lock, in which commission represents an average of over 60% of the remuneration received by the worker.

Decision

The CJEU concluded that the WTD must be interpreted as precluding national legislation and practice which allows a worker whose remuneration consists of a basic salary and commission, to be paid remuneration composed exclusively of his basic salary during periods of annual leave. In other words commission must be factored in when calculating holiday pay.

Unhelpfully, the CJEU sidestepped a specific question it was asked about what principles were to be adopted by Member States when calculating the sum that is payable to the worker by reference to the commission that the worker would or might have earned if he had not taken annual leave. The CJEU stated that it is for the national court or Tribunal to assess, in light of the principles laid down in Williams v British Airways, whether the average pay calculated for Mr Lock in respect of his annual leave was compliant with the WTD. The case will now go back to the original Employment Tribunal for it to transpose this decision into UK law.

Thoughts

This decision is not surprising in light of the Advocate General’s opinion and the European approach to holiday pay which had tended to side with the worker.

Another first instance decision has been issued by Nottingham Employment Tribunal in the case of Hertel (UK) Limited v AMEC Group Limited. In this case the Tribunal were willing to interpret the WTR in a manner consistent with the recent European decision in Lock by adding a further paragraph to the end of regulation 16(3)(d) of the WTR. The effect of this is to assume that non-salaried employees have no normal working hours such that an average therefore needs to be calculated which should include overtime and incentive bonuses in holiday pay calculations. This may be an early indication of the willingness, or perhaps the necessity for UK Tribunals to be creative and stretch the WTR in order to make them compliant with the EU case law position.

Watch out for more commentary and guidance as the Lock case goes back to Tribunal and the keenly awaited Employment Appeal Tribunal (EAT) decision in the joint cases of Neal v Freightliner and Fulton v Bear Scotland Ltd goes to the EAT on 30 and 31 July 2014.

Do contact us if you would like further advice on any preparatory steps you can take now to mitigate the risk of holiday pay claims and significant claims for back pay. Will this decision lead to more novel approaches to commission based roles, such as rolling up or applying an annual average to commission?

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Hannah Robbins

Partner

I am a very experienced employment lawyer and advocate in tribunal. I act on the full range of contentious and non-contentious employment issues.