Articles | Holiday Pay Should Include Commission

The ECJ has indicated that workers who regularly earn commission should have this reflected in their holiday pay. David Clay from our Employment Team reports on the practical implications.

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David Clay

David Clay

An Employment Tribunal (“ET”) has asked the European Court of Justice (“ECJ”) to determine how employers should calculate holiday pay for workers whose pay is usually made up of basic pay plus commission.

In the case referred Mr Lock, a sales consultant for British Gas, earned approximately 60 per cent of his pay from commission. Mr Lock was on annual leave for two weeks over Christmas and during this time he was unable to make any sales.  As a result his salary for the period that followed his holiday was lower than at other times. His holiday pay was calculated by reference to his basic salary only. Mr Lock brought a claim in the ET for outstanding holiday pay (Lock v British Gas Trading Ltd and others).

Advocate General Bot has now given the ECJ’s first stage opinion, and has followed the ECJ’s decision in Williams and others v British Airways plc, which is that where commission is intrinsically linked to the worker’s performance, and forms part of the worker’s normal remuneration, holiday pay should include:

  • basic salary;
  • any commission falling due during the period of annual leave; and
  • a further sum equal to the amount of commission that the worker would have generated during the period.

The Advocate General’s view is that it is for national courts to determine how the amount of commission should be calculated but he suggested that it would be appropriate to consider the average amount of commission earned by a worker over a representative period, such as 12 months. 

British Gas had argued that Mr Lock’s sales targets and his rate of commission took account of periods of annual leave where no commission could be generated. These arguments were rejected by the Advocate General who noted that schemes whereby holiday pay is ‘rolled-up’ within other remuneration (such as commission) are unlawful.

The consequence of this opinion is that workers would actually be paid more while on holiday to compensate for the fact that they are likely to earn less after a period of holiday. 

This is only the Advocate General’s opinion, which is the first stage of the ECJ’s decision and is not the final judgement.  However, the ECJ often follows the Advocate General’s opinion and this may end up as law.  If it does, the decision could have significant financial implications for many businesses whose staff are paid commission.