Calculation of correct payment for annual leave

Mr Lock was a sales consultant for British Gas. He was paid commission on a monthly basis which fluctuated based on sales. However on average commission made up around 60% of his pay. When he took leave he generated no sales and therefore obtained no commission payment, and consequently his salary was lower in the months following his annual leave. He bought a claim for outstanding holiday pay before an Employment Tribunal, as a result of which the aforementioned reference to the CGEU was made.

The Advocate General considered that the right to paid annual leave required proper protection, meaning that commission should be included when calculating holiday pay. The CGEU case law has already established that paid annual leave is a particularly important principle of EU law from which parties cannot derogate because of the need for the individual to enjoy a period of rest and relaxation. The purpose of pay is to ensure the individual can do this; but Article 7 of the Working Time Directive does not identify how paid holiday should be calculated. The case of British Airways Plc v Williams and others was a CGEU decision holding that, where remuneration comprised several different parts, any component part which was intrinsically linked to the duties which the worker was required to carry out and for which the individual was remunerated as part of his remuneration, must be taken into account when calculating pay during annual leave. Occasional remuneration for one-off or infrequent tasks would not be counted however. The Advocate General considered, in the light of this that, as Mr Lock’s commission was directly linked to the work he was required to carry out and was sufficiently permanent to form part of his monthly remuneration, a failure to include such commission in his paid holiday prevented him from properly exercising his right to paid annual leave.

If the CGEU follows this Opinion, workers who are paid wholly or partly by commission will be entitled to have this reflected in their pay for annual leave set out in the Directive.

This decision could have implications for employers who engage workers or employees whose remuneration comprises a number of different parts, in a similar way to the decision of British Airways Ways v Williams and others.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.