The claimant was a gas sales consultant whose pay was made up of basic salary plus commission calculated on the basis of completed sales. The commission was generally paid some weeks after the conclusion of the sale, but typically represented over 60% of the employee's normal monthly earnings.
During holiday periods the claimant was paid in the normal way: his basic salary plus any commission due from sales completed previously. He took three weeks' annual leave at the end of 2011; during this time he did not earn any commission as he was not making any sales and, as a result, his salary in the months following was reduced. He did receive a commission payment while he was on holiday, but this was for sales he had made earlier in the year which he would have received in any event, whether or not he had been on holiday. He then decided to ask for, in effect, a "top-up" to reflect later losses of commission, in the form of a claim for unpaid holiday pay.
The Employment Tribunal referred the claim to the European Court; the UK's Working Time regulations do not make it clear precisely what must be included in holiday pay in this sort of case.
The European Court – traditionally fiercely protective of annual leave as a health and safety measure – found that the approach taken by the employer was not in line with the Working Time Directive. Workers must retain their normal remuneration during a period of holiday; if they are at a financial disadvantage while on holiday, or as a result of taking holiday, they might be deterred from exercising their right to annual leave. This was a particular risk in a case such as this where commission represented a substantial proportion of earnings.
The Court explained that this principle applies to any payments "linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment" – such as commission, as in this case. Allowances for seniority, length of service and professional qualifications should also be maintained, but other components "intended exclusively to cover occasional or ancillary costs" do not have to be taken into account.
The case will now return to the employment tribunal to assess how the commission element of holiday pay should be calculated; the view of the Advocate General in the preliminary European Court Opinion was that the employee should get holiday pay which includes basic pay, commission actually payable during that period and a proportion of commission (averaged over a period of, say, 12 months) to reflect what he would have earned had he been working rather than on leave. (It has turned out to be a canny decision for the claimant to take holiday over the Christmas and New Year holiday period, when he is unlikely to have earned much commission had he been at work.)
Employers need to look carefully at how they calculate holiday pay in light of this decision and decide how to correct any problems relatively quickly, given that the three month time limit for bringing a claim for unauthorised deductions from wages will not start to run until the last payment not calculated in accordance with this decision is made.