In Lock v British Gas Trading Limited, the ECJ decided that where an employee's remuneration includes commission, the employee's holiday pay should include the commission that would have been generated by the employee if he/she had not taken annual leave.
Mr Lock was employed by British Gas as a sales consultant and received a basic salary plus a commission which accounted for approximately 60% of his total remuneration. Mr Lock took annual leave between 19 December 2011 and 3 January 2012 and was only paid his basic salary for that period. Mr Lock could not earn the commission while he was on holiday which reduced his total remuneration for the months after he returned to work. Mr Lock argued that this breached his rights under the Working Time Directive in the Employment Tribunal, which referred the case to the ECJ.
The ECJ decided that employees must receive their "normal" remuneration during annual leave such that they are put in the same position financially as if they had not taken annual leave. Otherwise, a reduction in remuneration may act as an incentive not to take annual leave, which would be contrary to the principle of the Working Time Directive.
Mr Lock was therefore entitled to be paid commission during his annual leave. The ECJ left the Employment Tribunal to decide how the appropriate level of commission could be calculated, but suggested that it should be assessed by reference to an average amount paid over a "representative period".
What does this mean?
In Lock the ECJ clarified that all components of total remuneration relating to a worker's "professional and personal status" must continue to be paid during annual leave. The ECJ expressly referred to allowances relating to "seniority, length of service and professional qualifications" as having to be maintained but it is likely that this principle extends to more commonly paid allowances such as car and housing allowances. Employers should now include commission payments on that list.
What should we do?
The key question is in relation to the "representative period" which should be used to calculate how much commission to pay during annual leave. We await the Employment Tribunal's decision on that with interest, however the starting point is likely to be the 12 week retrospective reference period already contained in the Working Time Regulations 1998 for calculating holiday pay due to workers with variable basic pay. This may disadvantage workers who seek to take holiday following a period of low sales generation.
Finally, the principle that "normal" remuneration should continue to be paid during annual leave will be considered further by the EAT this summer, specifically whether overtime payments should also be included in holiday pay.