Ruling On Salesman’s Case Provides Clarity

The European Court of Justice (ECJ) has handed down an important ruling  confirming that statutory holiday pay should be calculated to include any commission received on top of a basic salary.

The case of British Gas v Lock related to a salesman on a basic salary who was also paid commission in arrears which was dependent on his sales success.

In practice, the commission he received made up about 60 per cent of his take home pay.  Mr Lock went on annual leave between 19 December 2011 to 3 January 2012 and during this, he was paid his basic salary plus the commission from previous sales that fell due during the period.

However, as a result of having taken a holiday, Mr Lock suffered a reduced income in the months following his return to work because he was unable to earn commission during his holiday.

In reviewing the case, the ECJ was asked to determine if holiday pay should be calculated by reference to commission which would have been earned had holiday not been taken, and if so how this should be calculated.

The ECJ confirmed that holiday pay should include commission payments and that a worker should not be disadvantaged by taking annual leave.  However, it said that it was up to Member States to determine the precise nature of the calculation.

According to experts, the decision follows accepted principles that a worker who receives a basic salary and commission should get holiday pay which is comparable to normal pay.

Expert Opinion

This decision was expected. The requirement to take holiday is closely related to the safety and health of workers and, unless they receive ‘normal pay’, they are likely to be put off from taking their full entitlement to paid holiday. <br/> <br/>“In this case, Mr Lock was able to show that there was an intrinsic link between the work he was expected to do under his contract of employment – ie. to persuade customers to switch energy suppliers – and the amount of salary he received. <br/> <br/>“However, the story does not end here. There are a series of other appeals which are due to be heard in July this year which will determine whether voluntary overtime, bonuses and expenses should also be included in a worker’s holiday pay calculation. <br/> <br/>“The problem for employers is that workers who have only received ‘basic pay’ during holiday can claim that the underpayment is part of a series of deductions from their wages. Potentially, therefore employers face claims which could go back 16 years - to the commencement of the Working Time Regulations. There are ways in which employers can attempt to limit their liability, but these will have to be carefully managed and considered. <br/> <br/>“We are advising our clients to review their holiday pay policies and make changes to ensure that workers are paid at the proper rate and are not deterred from taking holiday. Some employers have already done so, in an attempt to limit their liability. For example, John Lewis told its staff last year that it was paying out a total of £40 million in backdated payments because of a ‘mistake’ with its holiday pay calculations.” <br/>