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Holiday Pay must Include Commission

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Thanks to Ed McFarlane of Deminos HR for preparing this case summary

Does the Working Time Directive require that a worker's statutory holiday pay not be limited to basic salary where commission is a part of remuneration?

Yes, held the European Court of Justice (ECJ), in British Gas v Lock, following the Advocate-General's preliminary ruling on the same case.

Mr Lock was a salesman on a basic salary with variable commission paid in arrears. Mr Lock's commission depended not on the time worked, but the outcome of that work, i.e. sales achieved. Mr Lock could not earn commission whilst on leave, and therefore would lose income by taking it. He brought a claim in the Leicester employment tribunal for his 'lost' holiday pay after taking leave in December 2011 to January 2012.

The employment tribunal made a reference to the ECJ to ask, broadly, if in calculating holiday pay, Member States must take measures to ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work, and, if so, how to work out that holiday pay.

The ECJ answered 'yes' to the first question, but left the calculation as a matter for the national courts to decide on the basis of the rules and criteria set out in the ECJ's case law on paid leave, and in light of the objective of the directive, to ensure that workers take paid leave.

The case reaffirms the principle that where a worker's pay consists of a basic salary and variable elements directly linked to work, then holiday pay should be paid on the basis that a worker receives pay comparable to normal pay whilst on holiday, and is not deterred from taking leave by financial considerations, cf. the pilots' case, Williams v British Airways.

The case leaves open the question of how best to ensure that the objectives of the directive are met, but did not consider whether employers might require workers to take their full entitlement to leave, thereby ensuring that they are not 'deterred' from taking leave, and it may be that some form of 'rolling-up' of commission on an averaging basis might be the best way forward.

Practitioners may wish to consider advising clients to review their contractual leave arrangements with a view to ensuring that commission or other relevant variable payments are factored into holiday pay due under the Directive. Any amendments to the Working Time Regulations to implement the effect of this judgment may take some time.