In Lock v British Gas Trading Ltd, the ECJ has confirmed that holiday pay must include a payment in respect of contractual sales-based commission, rather than being based on basic salary only, under the Working Time Directive (WTD).
The case was heard at first instance by Leicester employment
tribunal, which recognised that under the natural wording of the
Working Time Regulations 1998 (WTR) and the week's pay
provisions of the Employment Rights Act 1996 (ERA), the Claimant
was not entitled to a sum in respect of commission in his holiday
pay. This position had been confirmed by the Court of Appeal in
Evans v Malley Organisation Ltd t/a First Business
Support. However, the Tribunal recognised a conflict with the
decision in Williams v British Airways plc, in which the
ECJ had held that the WTD requires that workers receive their
"normal remuneration", which includes any payments
"intrinsically linked" to the performance of the
worker's tasks, during holiday. The Tribunal therefore referred
the case to the ECJ for guidance.
In the interim, the Advocate General issued an opinion that the
Claimant's commission was intrinsically linked to his role as a
salesman. Therefore, his statutory holiday pay should include an
amount to reflect the commission he would have earned had he not
taken annual leave.
The ECJ agreed with the Advocate General that employees must be
compensated for sales-based commission during holiday. In terms of
how such sums should be calculated, the ECJ stated that this must
be decided by the national courts or tribunal, focussing on the
average commission earned over the appropriate reference period
under national law.
This case is now likely to return to the employment tribunal,
which will need to consider whether the WTR and the week's pay
provisions of the ERA can be interpreted in line with the ECJ's
decision. It is likely that they will find a way to do so,
regardless of how much the wording needs to be stretched. They will
also need to determine how commission should be calculated. It is
likely that they will use the standard UK reference period of 12
weeks which is used for calculating holiday pay for workers with no
fixed hours.
The decision will have a very significant financial impact on
employers who pay contractual commission, as they will now have to
pay increased holiday pay to all such workers. What is more, the
impact of the decision is not limited to commission payments only.
"Normal remuneration" which is "intrinsically
linked" to the workers' function may well include overtime
payments as well. This point should be clarified by two cases
listed in the EAT in July. In the cases of Neal v Freightliner
Ltd and Fulton v Bear Scotland Ltd, the Tribunal held
that a worker's overtime payments had to be taken into account
when calculating his holiday pay.
The one comfort for hard-hit employers is that the decision is
likely to apply only to the four weeks' holiday under the WTD,
not the full 5.6 weeks specified by the WTR or any additional
contractual holiday. This point should be confirmed by the Tribunal
in due course.
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