CJEU rules on holiday pay and unearned commission

By Employment Team Sat 19 Jul, 2014

In the latest in a series of cases on the correct calculation of holiday pay Lock v British Gas Trading Limited and Others, the Court of Justice of the European Union (CJEU) has followed the preliminary opinion given by the Advocate General that a correct interpretation of the EU Working Time Directive (WTD) requires that the holiday pay of an employee whose normal remuneration is made up of a basic salary plus variable commission should include an amount equivalent to the sum he would have earned by way of commission had he been working rather than on annual leave.

Mr Lock’s normal pay included a commission based on sales in the previous month, and this represented on average more than 60 per cent of his remuneration. As he could not achieve sales whilst on annual holiday, this meant that his pay for the month following was lower than usual. He brought an Employment Tribunal (ET) claim for outstanding holiday pay.

The ET referred the matter to the CJEU, asking whether, in such circumstances, Article 7 of the WTD required commission to be included in holiday pay and, if so, how it should be calculated.

The CJEU concluded that Mr Lock’s holiday pay should include commission. The right to paid annual leave is an important principle of EU law, the purpose of which is to allow a worker time to rest and enjoy a period of ‘relaxation and leisure’.

Such a reduction in a worker’s remuneration in respect of his paid annual leave, which would be liable to deter him from actually exercising his right to take that leave, is contrary to the objective pursued by Article 7 of the WTD.

As regards how the commission-based element of holiday pay should be calculated, the CJEU considered this must be assessed by the national court or tribunal on the basis of the rules and criteria set out by the case law of the CJEU and in the light of the objective pursued by Article 7 of the WTD.

This ruling affirms the position that holiday pay of just basic salary on its own is not sufficient if this is not the worker’s normal remuneration, which has been defined as remuneration that is ‘linked intrinsically to the performance of the tasks which the worker is contractually required to carry out under his contract of employment and in respect of which a monetary amount is provided’ British Airways plc v Williams.

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