THE HIDDEN COST OF HOLIDAY PAY

Every worker has an entitlement to paid annual leave. The purpose of holiday pay is to put the worker, in terms of salary, in a position which is comparable to when the worker is in work.

On 22 May 2014 the Court of Justice of the European Union issued a Judgment in the case of Z J R Lock v British Gas Trading Limited which has significant implications for those employees whose pay includes commission or some other variable element.

THE FACTS

Mr Lock was employed as an Internal Energy Sales Consultant. His role was to persuade clients to buy British Gas energy products. His pay consisted of basic salary and commission. Commission represented around 60% of his overall pay. During his annual leave, he received basic salary and commission for past sales only. He was unable to earn commission for new sales whilst on holiday.

Mr Lock brought a claim for unpaid holiday pay. The issue was whether his holiday pay should include an additional element in respect of commission he was unable to earn due to being on holiday.

THE JUDGMENT

The Court ruled that an employee whose normal remuneration consists of salary and commission must be paid an additional sum to reflect commission which would most likely have been earned had the employee not been on annual leave. How that figure is to be calculated has been left to the national court. It is likely that an average of past commission will be used as the basis for the calculation.

THE IMPLICATIONS

This Judgment has implications for both employers and employees:

• Employees whose salary includes commission may well be entitled to insist that holiday pay includes an additional payment to reflect commission which would most likely have been earned during the period of holiday. Employees may also have substantial claims for past underpayment of holiday pay.
• Employers will have to revise their holiday pay arrangements to ensure that employees are paid both salary and a sum to reflect what they would most likely have earned by way of commission had they been at work instead of on holiday.

Please let us know if you require any advice on any aspect of employment law.