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Holiday Pay and Commission

In the recent decision made by the European Court in Lock v British Gas Trading Limited [2014] WLR (D) 224 it was determined that EU law requires a worker’s statutory holiday pay to take commission payments into account: that is to say, a worker’s holiday pay should not be based solely on basic salary.

In that case, Mr Lock was an energy salesman. He was paid basic pay and a monthly commission on sales which made up about 60% of his income. When he took annual leave, he received his basic pay together with commission earned on past sales. However, for the period he was away he didn’t have any sales and this impacted on his income after he returned so he brought a claim in the employment tribunal contending that this was a breach of the Working Time Regulations 1998 (WTR) because the resulting financial detriment might deter him from taking annual leave.

The WTR state that a worker has the right to at least four weeks paid holiday but the regulations don’t provide for how holiday pay should be calculated. In Williams v British Airways plc [2011] IRLR 948 the ECJ had previously determined that holiday pay is linked to normal remuneration. In Mr. Lock’s case, the ECJ determined that his commission was directly linked to his work and, therefore, formed part of his normal remuneration. The method of calculating the sum due was then left to the domestic court or tribunal to assess on the basis of an average over a representative reference period.

Although the final outcome remains uncertain, we can be fairly sure that the decision will mean that, unless they make changes to how they pay commission, employers with workers earning commission are likely to end up paying more for holiday pay going forward. In addition, they are also likely to face claims for previous periods of leave. All this could end up being very expensive. The flip side to this is that employers will be looking for alternative ways to pay commission so that their liability for holiday pay is reduced. Added to this, there are still questions that need to be answered about the impact of the decision in Lock; for example, does the decision apply to all periods of leave or just to the four weeks paid holiday prescribed by the WTR?

Adam Swirsky / 1st Jul 2014


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