Z.J.R. Lock v British Gas Trading Ltd and Others C-539/12 provides that components of remuneration, other than just basic pay, should be included for the purpose of calculating holiday pay under the UK Working Time Regulations 1998.
The European Court of Justice (ECJ) ruled that where a worker’s pay ordinarily includes commission, a worker’s holiday pay should also include commission. Mr. Lock (L), an employee of British Gas, brought a claim against British Gas for outstanding holiday pay on the basis that his monthly salary consisted of basic pay and commission. Whilst under the terms of his contract the basic pay is fixed, the amount of commission paid fluctuates based on the number of sales. As L did not perform any work during his period of annual leave he was not able to make any new sales and as a result was unable to generate commission during that period. This meant L’s remuneration reduced in the months following his return to work, as a result of his inability to earn commission whilst he was on holiday. The effect of annual leave placed him in a situation where his average commission earnings over the course of the year were lower than they would have been if he had not taken leave. The ECJ considered the financial disadvantage to his salary during the months following his annual leave, the fact that commission payments were directly linked to the performance of his role and the objective of Article 7 of Directive 2003/88, which strongly encourages workers to exercise their right to annual leave.
Consequently, the ECJ held that an employer must pay a worker in respect of periods of annual leave by reference to all components of remuneration that they would have earned during that period had they not taken leave. The ECJ ruled that the means of calculating the commission a worker is entitled to in respect of annual leave must be assessed by the national court or Employment Tribunal (ET) on the basis of the rules and criteria set out by the case law of the ECJ and the objective of Article 7 of Directive 2003/88.
The decision raises a number of key considerations for employers:
- Employers will need to reassess the pay they provide to workers who earn commission in connection with annual leave. This means employers should consider whether to take components, other than just basic pay, into account when calculating the remuneration that is payable to workers in respect of paid annual leave.
- Employers should consider how the ET calculates any payment in respect of commission when reassessing employees’ remuneration during annual leave. Employers should be aware of the problem that may arise where commission forms a central part of an employee’s reward package.
- The ECJ’s decision may have an impact beyond cases involving commission. The ECJ’s insistence that workers receive their “normal remuneration” during statutory holiday periods, so as to ensure they are not deterred from taking holiday, raises the question of whether overtime payments should also be included.