ECJ Rules Holiday Pay Must Include Commission

The European Court of Justice has ruled that employers must include commission when they calculate holiday pay. In a binding ruling in the Lock v British Gas case, the ECJ noted that a salesperson's holiday pay could not be limited to their basic salary. The new rules mean any worker whose pay is either wholly or partly in commission will be entitled to have this reflected in their holiday pay when they take annual leave.

The case came before the court after an Employment Tribunal in Leicester had asked the EU court to rule on Mr Lock’s claim to have his holiday pay include the 60% of his average remuneration that he gets from commission on sales, in his role as salesman at British Gas. Mr Lock argued that his commission-related earnings do not depend on the amount of time worked, but on the outcome of his efforts.

He claimed that as he was unable to generate any new sales or follow up on potential sales while on holiday, it affected the amount he was paid once he returned to work and under European law he was entitled to be compensated for this.

The case was backed by Unison, the U.K.’s largest union, which said last year that the salesman wouldn’t take more than five consecutive days of annual leave to avoid losing pay.

The ruling stated: “As British Gas conceded at the hearing, the worker does not generate any commission during the period of his annual leave… In the period following that of his annual leave the worker is paid only reduced remuneration comprising his basic salary. That adverse financial impact may deter the worker from actually taking that leave. Such a reduction in a worker’s remuneration in respect of his paid annual leave, liable to deter him from actually exercising his right to take that leave, is contrary to EU directives”.

Flood of backdated claims

Experts in employment have warned that the ruling could lead to a flood of claims from commission-earning workers for money they are owed while on holiday. Such claims could potentially date back since the European directive was introduced in 2008, putting companies under serious financial pressures, especially SMEs.

Neil Carberry, the Confederation of British Industry’s director of employment and skills, declared that the ruling could lead to considerable financial costs for businesses, reaching at least hundreds of millions of pounds.

“With our economy still recovering, the current regulations we have in the UK must be protected, and firms must be reassured they will not be exposed to large retrospective liabilities despite having followed UK law. Any change risks damaging our strong labour market, posing a serious risk to jobs,” Mr Carberry states.

Following the judgement it is believed that employers will have to update their remuneration polices and review their contractual leave arrangements to ensure that commission payments are factored into the holiday pay going forward.

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