Staff on commission to benefit from a recent ECJ ruling

The European Court of Justice’s decision could have serious ramifications across the business community but particularly in the retail, utilities, and telecoms sectors where employers make extensive use of performance-related commission payments.

In Lock v British Gas Trading Ltd the ECJ held that where commission is intrinsically linked to the work carried out by a worker, it would be unfair for an employer not to take such payments into account when calculating holiday pay.

Mr Lock was a sales consultant for British Gas. He was paid commission on a monthly basis which supplemented his basic salary and made up on average approximately 60 per cent of his pay. Because Mr Lock was on annual leave between December 2011 and January 2012, he did not make any new sales and as a result did not generate commission. Mr Lock claimed he lost out financially as a result of taking annual leave because he was only paid his basic salary during that period. Mr Lock claimed outstanding commission-based holiday pay at the Employment Tribunal.

The case was referred to the ECJ to consider whether the UK’s Working Time Regulations (1998) should be interpreted to require commission to be included in the calculation of holiday pay. It held that commission payments should be taken into account despite the fact that they may fluctuate monthly.

Richard Woodman, a Partner in the Employment Department at Royds LLP, said: "The decision could be an additional financial burden for employers who use commission payments to motivate staff. The difficulty for employers is going to be how to calculate holiday pay when commission payments may fluctuate. The additional concern is that it may prompt workers to take holiday during slow sales periods to enable them to benefit from increased holiday pay reflected by high sales periods.

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