Holiday Pay and Commission

Following the decision of the Court of Justice of the European Union (CJEU) in Lock v British Gas Trading Limited that an employee’s holiday pay must take account of his commission payments, the Employment Tribunal (ET) has decided that it is possible to read words into the Working Time Regulations 1998 (WTR) in order to overcome the incompatibility between domestic law and EU law.

The case concerned a British Gas salesman whose commission income on sales greatly exceeded his basic salary. During his periods of annual leave, he was unable to generate commission, with the result that his remuneration was reduced on his return to work. The impact on his livelihood discouraged him from taking holidays and he brought an ET claim for unlawful deduction from wages. The ET referred the matter to the CJEU, asking whether, in such circumstances, Article 7 of the EU Working Time Directive (WTD), which the WTR were designed to implement, required commission to be included in holiday pay and, if so, how it should be calculated.

The CJEU found that any reduction in a worker’s remuneration in respect of his paid annual leave that would be liable to deter him from actually exercising his right to take that leave is contrary to the objective pursued by Article 7. How the commission-based element of holiday pay should be calculated was for the national court or tribunal to decide, however, taking into account the rules and criteria set out by the case law of the CJEU and in the light of the objective pursued by Article 7 of the WTD.

In the light of the CJEU’s ruling, the ET found that it was necessary to incorporate into the WTR additional words in order to achieve correspondence with the WTD. Those words were to the effect that the man, and others in the same position, were entitled to have their holiday pay calculated on the basis that they had continued to earn commission whilst on leave. The ET expressed confidence that its decision was in line with the underlying intention of Parliament to accurately transcribe the WTD into UK law.

There was no difference in principle between payment for non-guaranteed overtime (Bear Scotland Limited v Fulton) and payment in respect of commission so far as holiday pay was concerned, and implying fresh words into the WTR did not go against the grain or the underlying thrust of the domestic legislation.