In the recent case of Z.J.R Lock v British Gas Trading Ltd and Others, the European Court of Justice made a decision on what holiday pay should be in cases where a worker’s salary is made up of fixed and variable parts. This case specifically looked at whether holiday pay should include basic salary only or commission and basic salary. The Court ultimately decided in this case that Lock was entitled to holiday pay based on both parts, however it is worth taking note of some of the principles considered and determined in this case.
Lock, an Internal Energy Sales Consultant was employed at British Gas to sell energy products to business customers. Lock received a basic salary however, he also received commission for his sales. The commission payments fluctuated from month to month but his pay always contained a sum representing commission.
During his holiday, he was unable to make any sales and therefore, unable to earn any commission. When it was time for this period to be paid, British Gas paid Lock his basic salary only and therefore, his monthly pay was much less than those months’ in which annual leave had not been taken. In light of this, he brought a claim arguing that his pay for this period should have also included commission.
In making its decision, the Court reminded itself of several principles that were key to the questions of what the purpose of holiday pay is and what it should include. These were:-
- It is a fundamental right of European law that all workers may take paid holiday
- Pay is a key element to this right because this will enable the worker to take holiday (as opposed to discouraging them if they are not paid)
- The purpose of pay is to place the worker in a pay position which is comparable to when they are at work
- That holiday pay should include any sum which is ‘intrinsically linked’ to the worker’s performance of his contract provided that the payments have a ‘degree of permanence’
- The variable part of the payment must be averaged out over a reference period to determine the appropriate amount to be paid for this aspect of the worker’s work
In considering these principles, the Court determined that a sum representing the commission should be paid to Lock for the period in which he took holiday. The Court found that a failure to take commission into account was capable of deterring Lock from exercising his right to take such leave and that this would be contrary to European law principles.
This then finally left the question – what amount should Lock be paid to compensate him for the loss of commission during his period of holiday? Unfortunately, neither previous case law nor this case determined this issue, however, the Court did indicate that a reference period of 12 months would appear to be appropriate.
In summary, employers should revaluate the holiday pay they give to workers where such workers habitually receive commission or other similar payments. If you require specific advice on this issue, please contact me or one of the team.
If you found this blog relevant to you, you may also be interested in our blog on whether overtime payments should be included in holiday pay