Case update (3): Holiday pay and commission

holiday pay - deck chairSummary:  Should commission be taken into account when calculating holiday pay, even if it is unearned?

Yes, says the Advocate-General Bot in the CJEU in the first stage of the court considering the case of ZJR Lock v British Gas.

Facts:  Mr Lock is employed by British Gas Trading Ltd (British Gas) as an internal energy sales consultant. His pay consists of two elements, basic pay and commission. His commission is based on sales achieved and fluctuates from month to month. His commission is paid in arrears and made up about 60% of his overall pay. When he takes holiday he is unable to generate commission so that his salary for the period that follows is lower than other times. Mr Lock was on annual leave for two weeks over Christmas 2011 and he was not able to make any sales during this period. When calculating his holiday pay, his employer took only his basic pay into account.

Mr Lock brought a claim for unpaid holiday pay in the Tribunal. The Tribunal was unsure how to proceed in light of previous conflicting EAT decisions. Therefore it stayed the proceedings and referred the case to the Court of Justice of the European Union (CJEU).

The Advocate General of the CJEU has now given the court’s first stage opinion, which is that commission should be taken into account when calculating holiday pay:  commission was part of Mr Lock’s normal remuneration and was linked with tasks he was required to perform. If he were not paid it in respect of his period of annual leave, there was a risk of deterring him from taking annual leave. Accordingly, Mr Lock should be paid commission in respect of the period of annual leave and not only during annual leave.  The Advocate General rejected the argument of British Gas that it was sufficient that he received pay for commission during annual leave.

The Advocate General’s view was that it was for the national court to determine how the amount of holiday pay reflecting commission should be calculated. However, he considered that taking the average amount received by the worker over a representative period, for example, the previous 12 months, would be appropriate.

Implications:  Although this is only an Advocate General’s opinion, which is the first stage of a CJEU decision, and not the final CJEU judgment, it may well end up as law, as the CJEU often does follow the Advocate General’s opinion.  If this is the case, the decision is likely to have wide-reaching consequences for many organisations and their staff. Overall, organisations would be wise to begin consideration of how their pay is currently structured and, in particular, whether commission and similar sales-related payment schemes need to be adjusted if ‘extra’ payments are going to have to be paid out, even if not actually earned from actual sales.  Perhaps a proportion of commission needs to be held back and ‘banked’ for payment out in respect of holiday periods? In particular, might the consequence of this opinion be that a worker would actually be paid more while on annual leave to make up for the fact that they are likely to earn less after a period of annual leave, because further sales and therefore commission are not generated while the worker is on holiday? Given the potential significance of this opinion, do watch this space for further developments!