CIPD: “Employers face rising wage bill after Lock v British Gas case. Employees who earn commission on top of their salaries are inline for an increase in their annual holiday pay following a ruling by the European Court of Justice (ECJ).The court’s decision in the Lock v British Gas case means that holiday pay should be increased to take account of the commission that sales staff, for example, earn.
Judges found that the Working Time Directive requires commission to be taken into account when calculating holiday pay. This covers all workers who are paid wholly or partly by commission
Under UK law the Working Time Regulations 1998 – transposed into UK law from the European Working Time Directive (WTD) – a worker is entitled to be paid during statutory annual leave at a rate of a week’s pay for each week of leave.
In the case of Lock, a sales consultant for British Gas, the employee was paid commission on a monthly basis and on average commission made up about 60 per cent of his pay. However, when he took annual leave he did not generate any commission, and, when calculating his holiday pay, his employer took only his basic pay into account. Lock brought an employment tribunal claim for outstanding holiday pay and the tribunal asked the ECJ if the WTD requires commission to be included in holiday pay.
The ECJ considered the case of British Airways plc v Williams and others to inform its decision, which involved the concept of “normal remuneration”.
In the Lock case the judges decided, following the British Airways case, that as commission is intrinsically linked to the performance of the tasks the worker is required to carry out under his contract of employment, it must be taken into account in calculating holiday pay. Commission is directly linked to the work Lock normally carried out and, although it fluctuated from month to month, it was permanent enough for it to be regarded as part of his normal monthly remuneration, the court said.
Nicola Rabson, an employment partner at law firm Linklaters, commented: “Holiday pay should be straightforward to calculate, but employers will now be faced with even more complicated and costly holiday pay calculations, in what is already a minefield.
“As a result of this decision, it’s possible that employees may be able to gain a significant financial advantage by taking holiday after a particularly lucrative period.”
Trowers and Hamlins, employment partner Rebecca McGuirk, said: “Following the decision in Lock it’s clear that the holiday pay rules under the Working Time Regulations (“a week’s pay for a week’s leave”) do not accord with the Directive. As long as there is an intrinsic link between the various components making up the total remuneration of the worker and the performance of the tasks he is required to carry out under his contract of employment, then these components must be included in any holiday pay calculation.”