Statutory holiday pay should take account of commission payments

7 April 2015

In this case, Lock v British Gas Trading Ltd, Mr Lock was an energy sales consultant whose commission accounted for approximately 60% of his salary.  He decided to bring a claim to the Employment Tribunal on discovering that, following a period of annual leave, his income had reduced due to the fact that he had not earned commission during his absence on holiday.  The tribunal decided to refer the matter to the ECJ when it recognised that according to current national law, Mr Lock would not be entitled to a sum in respect of commission in his holiday pay. 

National law currently states that employees are entitled to four weeks' paid annual leave, such pay being calculated according to basic salary alone.  Thus employees whose salary includes an element of commission will subsequently be placed at a financial disadvantage since no commission will be generated during their annual leave.  A possible effect of this is that employees will be dissuaded from taking their holiday entitlement for fear of suffering financial loss and falling behind with their financial commitments. 

The ECJ has ruled that this practice is incompatible with the intentions of the Working Time Directive (WTD) which provides that member states must ensure that workers have the right to a minimum of four weeks' paid annual leave, although it does not prescribe how the pay should be calculated.  The WTD also states that workers must receive their "normal remuneration" during annual leave. 

It is likely that the case will now return to the tribunal to consider whether current national legislation can be interpreted in line with the ECJ's decision and if so, the details of how the appropriate amount of holiday pay will be calculated. 

The ECJ has directed that when assessing the amount of holiday pay to be made, the tribunal should focus on the average commission earned over a particular 'reference period'.  It has been suggested that 12 months would be an appropriate length of time however under the current regulations, the reference period for workers with no normal working hours is 12 weeks.  It is possible that in the interests of consistency, the Employment Tribunal may decide that this latter period should be adopted. 

This case has also raised the issue of whether overtime payments should be included in holiday pay calculations.  In fact, two cases are currently awaiting consideration by the Employment Tribunal with regards to this issue.

This is not legal advice; it is intended to provide information of general interest about current legal issues.