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Lock case on commission and holiday pay due in Tribunal in October

Earlier this year, we blogged on the Lock v British Gas Trading Limited decision from the Court of Justice of the European Union (CJEU), which has now been remitted to the Leicester Employment Tribunal for hearing on 20 and 21 October.

Calculating holiday pay

 

The initial hearing in October will focus on whether the Working Time Regulations 1998 (WTR) can be read in a purposive manner that render them consistent with the Working Time Directive (WTD) or whether it is possible to insert words into domestic legislation to make the WTR conform. If Mr Lock is succesful at this first stage hearing there will be a further hearing in March 2015 to make judgment on the practical aspects such as whether the CJEU decision applies to the minimum 4 weeks leave under European law or 5.6 weeks leave allowed for under the WTR.

 

 

The Lock case in Europe

The CJEU followed the earlier Advocate General’s opinion and held that commission payments do fall within the concept of normal pay and employers should therefore take commission payments into account when calculating a worker’s holiday pay.

In this case, Mr Lock’s salary comprised a basic salary and commission payments which were based on his sales. His commission made up over 60% of his total remuneration. When he was on holiday Mr Lock received an average of his pay over the preceding 12 weeks before he took the holiday.

However, he could not make any sales whilst on holiday and therefore he pursued a case to Tribunal on the basis that he suffered a loss in commission because it dropped in the period after he returned from holiday.

British Gas and the UK government argued that under UK legislation and practice, the objective of the WTD to pay normal remuneration during holiday, was achieved. This was because during his period of paid annual leave, Mr Lock did receive a salary comparable to that earned during the 12 weeks preceding the annual leave, which comprised his basic salary and commission.

However, the problem, as British Gas conceded at the hearing, was that a worker does not generate any commission during their period of holiday and as a consequence the worker is paid reduced remuneration comprising only his basic salary upon his return to work after annual leave. The result is that the adverse financial impact may deter the worker from actually taking annual leave. The Advocate General emphasised in his opinion that this is all the more likely to act as a deterrent in a case like Lock, in which commission represents an average of over 60% of the remuneration received by the worker.

Decision

The CJEU concluded that the WTD must be interpreted as precluding national legislation and practice which allows a worker whose remuneration consists of a basic salary and commission, to be paid remuneration composed exclusively of his basic salary during periods of annual leave. In other words commission must be factored in when calculating holiday pay.

Unhelpfully, the CJEU sidestepped a specific question it was asked about what principles were to be adopted by Member States when calculating the sum that is payable to the worker by reference to the commission that the worker would or might have earned if he had not taken annual leave. The CJEU stated that it is for the national court or Tribunal to assess, in light of the principles laid down in Williams v British Airways, whether the average pay calculated for Mr Lock in respect of his annual leave was compliant with the WTD. This issue will have to be determined by the Leicester Employment Tribunal on 20 and 21 October 2014.

Thoughts

The CJEU decision was not surprising in light of the Advocate General’s opinion and the European approach to holiday pay which has tended to side with the worker.

We also keenly await the decision in the combined holiday cases of Fulton v Bear and Wood and others v Hertel and AMEC which were heard by the EAT in the summer and a decision is anticipated in October. We predict that the Tribunal may want to wait and see the direction from the EAT on the slightly different, but related issue of overtime before issuing a judgment on whether commission must be factored into holiday pay calculations, so we would expect that judgment in the Lock case will be reserved.

Following our succesful tweeting from the EAT, we will be attending the Tribunal to report back as the action unfolds in the Lock case on 20 and 21 October 2014.

Do contact us if you would like further advice on any preparatory steps you can take now to mitigate the risk of holiday pay claims and significant claims for back pay. Will this decision lead to more novel approaches to commission based roles, such as rolling up or applying an annual average to commission?

Other holiday pay blogs:

Calculating holiday pay – what to do in the meantime

Holiday pay: After the EAT hearing has progress been made?

Breaking news: key points from holiday pay cases in EAT

Holiday pay state of flux – survey results are in…

Part two holiday pay state of flux: Steps to take in the meantime

Part one holiday pay state of flux: Our predictions

Keep up to date and follow us @dwf_employment

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further