This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
The European Court of Justice (ECJ), in Lock v British Gas Trading Limited, has ruled that contractual commission payments do fall within normal pay, meaning that employers should take commission into account when calculating a worker's holiday pay.
The case reaffirms the principle that where a worker's normal pay consists of basic salary and variable elements directly linked to work, then holiday pay should be paid on the basis that a worker receives pay comparable to normal pay whilst on holiday. Workers should not be deterred from taking leave by being paid less (i.e. no commission payments).
Following the ECJ ruling national courts must determine how the commission element in respect of a period of holiday should be calculated. The Advocate General's view (not repeated by the ECJ) was that taking an average amount received by the employee over a representative period of, for example, the previous 12 months, would be appropriate. Watch out for further guidance once this case goes back to the Employment Tribunal.
The impact of this ruling will be extensive for employers, not only when calculating future holiday pay, but it could also result in significant liability for retrospective payments, going back six years. Employers who have workers whose remuneration is made up of a basic salary and commission, should review the calculation of their holiday pay.
We will keep you posted on further updates on holiday pay when the joint cases Neal v Freightliner and Fulton v Bear go to the EAT at the end of July.
