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23 July 2014 0 Comments
Posted in Employment, Opinion

Holiday pay for workers on commission: European Court of Justice decision update

Posted by , Partner

Royds Withy King employment law experts bring you an update on the legal case where the European Court of Justice was being asked to assess whether holiday pay must now contain rolled-up commission payments to compensate for the employee’s inability to earn commission during the period of leave.

In February, we sent a bulletin commenting on the legal case of Lock v British Gas, in which the European Court of Justice were being asked to assess whether holiday pay must now contain rolled-up commission payments to compensate for the employee’s inability to earn commission during the period of leave. You can read this article here.

The case has now been decided by the ECJ. It ruled that employers must, during a period of annual leave, pay employees the commission that they would have earned had they not been on leave. The reasoning is that employees should not be financially penalised because they are on leave and should not be deterred from taking holiday for financial reasons.

As we predicted, holiday pay for workers who regularly earn commission in addition to their basic salary must now include:

  1. Basic salary
  2. Any commission falling due for payment while the worker is on holiday
  3. Pay for the commission that the employee would have earned had they worked during their period of leave

One issue is unclear. The ECJ did not decide how employers should calculate holiday pay and has left this for national courts to decide. It remains to be seen how the tribunal looking at this case will calculate the loss of commission – this will be decided in the near future (and could be the subject of further appeals). The tribunal will have to consider whether, say, a 12 month average of previous commission payments would be appropriate, or whether (as for many other employment law provisions), 12 weeks.

We recommend that if your employees earn commission, you consider including commission into holiday pay. If not, employees may be able to take legal claims, for example for loss of wages or constructive unfair dismissal.

There is a further unexplained issue: what about employees who regularly work paid overtime? Most holiday pay clauses refer to holiday pay being basic pay only. Two recent decisions in the employment tribunal decided that holiday pay should include ‘lost’ overtime for the period of annual leave. Both decisions have been appealed and are due to be decided at the end of this month. We shall keep you posted.

Our Employment & HR team specialises in working closely with business owners and HR professionals on all aspects of employment law, including policies and procedures, remuneration and benefit issues, avoiding discrimination issues, as well as disciplinary/dismissal procedures and employment tribunals.

For more information and advice on any of the changes discussed in this update, or any other employment law or HR matter, please get in touch with members of our Employment & HR Team.

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