Holiday pay must include commission - an update

The European Court of Justice has followed the Advocate General’s opinion handed down recently that commission earned should be taken into account when calculating the holiday pay of workers whose pay is made up of a fixed amount (i.e., basic salary) and a variable amount (such as commission, overtime etc).

The opinion had been handed down in Lock -v- British Gas which concerned a salesman whose salary consisted of a fixed amount (basic salary) and a variable amount (commission).  The level of such commission was dependent on how many sales were achieved per month.  When Mr Lock took holiday he was unable to make any sales and subsequently, when calculating his holiday pay, his employer only took his basic pay into account.  Mr Lock brought a claim for unpaid holiday which was referred to the European Court of Justice on the question of whether member states must ensure that a worker taking leave is paid the commission s/he would have earned if at work and if so, how much.

The Advocate General opined that Mr Lock's holiday pay should have included an amount to reflect the commission he would have earned, had he been working during his period of annual leave.  Given that commission is intrinsically linked to the performance of tasks carried out under the terms of the worker’s contract, it should be taken into account in relation to the calculation of holiday pay.

The Advocate General was of the opinion that a worker’s pay whilst on annual leave should be calculated in such a way as to ensure that they are no worse off just because they have taken a period of annual leave; one of the reasons behind this thinking was that if workers do not receive such a benefit, they will be deterred from taking their annual leave.

The ECJ have followed this opinion and have stated that member states must take measures to ensure that a worker taking leave is paid the commission s/he would have earned if at work.  On the question of how much, this is for national courts to decide, based on ECJ case law and the objectives of the Working Time Directive.

The ruling will likely have the effect of increasing a worker’s pay whilst on annual leave which would make up for the potential loss of pay following their return as the worker would not have the opportunity to generate sales (which would lead to commission) whilst on annual leave.  The ruling will be a disappointment to employers who now must ensure that workers in receipt of variable elements of pay on annual leave are not “penalised” for taking their leave and remunerated as if they were at work during their period of leave.

For more information about this or any other employment law related matter, please contact us on 0115 9888 777.

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