Next week (4 February), the Leicester Employment Tribunal will be re-considering Mr Lock’s claim relating to commission and holiday pay.
As part of this decision it is likely to also consider whether the Working Time Regulations 1998 (WTR) can be interpreted in a manner consistent with European law and the Court of Justice of the European Union’s (CJEU) ruling that holiday pay should take account of commission. The Employment Appeal Tribunal (EAT) has set a clear precedent in the recent holiday pay cases and demonstrated its willingness to interpret the WTR in line with the CJEU’s rulings.
A reminder of the facts
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 Working Time Directive (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 is that a worker does not generate any commission during their period of holiday and as a consequence is paid reduced remuneration comprising only 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 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.
It remains difficult to predict the outcome of the case and even after the Employment Judge has reached a decision it may still be subject to an appeal. However, the outlook is probably bleak for employers who pay commission as there has to be a strong possibility that the Tribunal’s decision will change the way that holiday pay is calculated to include greater elements of commission.
Employers could face retrospective claims relating to previous periods of annual leave. Realistically this will have a greater impact on employers who do not pay their employees additional contractual holiday pay. Any retrospective claims are likely to be capped in a similar way to overtime in terms of time periods for backpay and limiting the application of the ruling to the four weeks’ holiday paid under the WTD and not the additional 1.6 weeks’ holiday entitlement granted under the WTR.
We will update you after the decision and will be in attendance and tweeting our thoughts and updates from the Tribunal.
All our blogs on holiday pay are available in our holiday pay hub
Questions about holiday pay? Get in touch