SUMMARY: The Employment Tribunal has decided that, by adding a new provision, the Working Time Regulations 1998 (“WTR”) can be interpreted so that holiday pay must take into account commission.
Mr Lock received a basic salary and was entitled to benefit under a commission scheme where payment was made for sales achieved. Whilst on holiday, Mr Lock’s rate of pay was calculated with reference to his basic salary; he was also paid commission earned during previous weeks. He was not however able to generate commission during his period of annual leave, so when he returned to work he received reduced remuneration. Mr Lock brought a claim for unlawful deduction of wages for unpaid holiday pay in the employment tribunal; he argued that holiday pay should be calculated to include all payments he would normally receive. As the exclusion of commission from the holiday pay calculation appeared to be inconsistent with European law, the Employment Tribunal referred the matter to the Court of Justice of the European Union (“CJEU”).
Decision of the CJEU
For those of you who were keeping pace with the issue of what payments other than basic pay should be included in the calculation of holiday pay, you will remember that the CJEU concluded that Mr Lock’s commission payments must be taken into account when calculating holiday pay for the first 4 weeks of the 5.6 weeks statutory holiday period.
The following were key in relation to the CJEU coming to its decision: Mr Lock’s commission payments were directly and intrinsically linked to the performance of the tasks he was required to carry out; during annual leave Mr Lock could not generate any commission and, as a consequence, on his return would receive reduced remuneration; and the financial impact of this on a worker may deter them from taking their annual leave.
The CJEU referred the case back to the Employment Tribunal to consider how the decision sits alongside our domestic law. Basically the tribunal would have to consider how holiday pay should be calculated.
Decision of the Employment Tribunal
The Employment Tribunal has concluded that the WTR can be interpreted so that commission must be included in holiday pay. In order to arrive at this position the WTR should be read as if they contain a new Regulation 16(3)(e), which effectively confirms that, for the purposes of calculating holiday pay, a worker with normal working hours whose pay includes commission or similar payments shall be treated as having remuneration which varies with the amount of work done.
What Does this Mean for Employers?
In terms of calculating holiday pay, this means that a week’s pay for the purposes of calculating holiday pay will be calculated using the employee’s average remuneration to include commission payments over the 12 weeks before the calculation date. This calculation method will only apply in respect of the first four weeks’ leave not the whole of the 5.6 weeks maximum statutory holiday entitlement.
Any commission previously earned which falls due whilst the employee is on holiday will also need to be paid.
Mr S J Lock (and others) v British Gas and others ET case number 1900503/2012 & others
For more details about this decision and what payments should be taken into account when calculating holiday pay please contact:
+44 (0) 808 172 93 22
This update is for general guidance only and does not constitute definitive advice.