The European Court of Justice (ECJ) has held that  the Working Time Directive (“Directive”) requires a worker’s statutory holiday pay to include commission where commission forms an intrinsic part of the worker’s normal remuneration. The Directive provides every worker across the 28 Member States of the European Union the right to four weeks’ paid annual leave; it also specifies that each week’s leave must be paid at the same rate as paid work.

In British Gas v Lock, Mr. Lock, a salesman based in the UK, was paid a basic monthly salary plus commission in arrears. The commission he received amounted to approximately 60 percent of his pay. Mr. Lock took annual leave, during which he could not earn any commission. His employer had calculated his holiday pay based only on his basic salary; as a result, his pay over the following few months was adversely affected. Mr. Lock brought an employment tribunal claim for lost holiday pay.

The tribunal referred the case to the ECJ, which held that where variable elements, such as commission, were intrinsically linked to a worker’s normal remuneration, those elements should be included in the calculation of the worker’s holiday pay. The ECJ declined to set out the appropriate calculation to be made by employers, and instead ruled that such a calculation was a matter to be decided by the individual Member States’ national courts. The ECJ highlighted that the calculation should be considered in light of the Directive’s objective to ensure that workers are not penalised when, or deterred from, taking annual leave.

The ECJ’s decision is likely to have the greatest impact on employers in the retail and utilities market, where commission forms a substantial part of remuneration. Nonetheless, all employers operating in Member States across Europe will need to ensure that contractual leave arrangements now consider variable elements, such as commission, when calculating a worker’s holiday pay.