In Lock v British Gas Trading Ltd and ors, Advocate General Bot has given his Opinion that Article 7 of the EU Working Time Directive (No.2003/88) requires commission to be taken into account when calculating the correct remuneration for paid annual leave. If the ECJ follows the Opinion, workers who are paid wholly or partly by commission will be entitled to have this reflected in their pay for annual leave. However, commission will not have to be paid on holiday entitlements which exceed the minimum level of annual leave set out in the Directive.
L, a sales consultant for British Gas, was paid commission on a monthly basis. The commission fluctuates as it is based on sales but, on average, it makes up about 60 per cent of L’s pay. When L took annual leave he did not generate any commission and, as a result, his salary was lower in the months following his annual leave. L brought a claim for outstanding holiday pay before an employment tribunal. The employment tribunal made a reference to the ECJ asking if Article 7 of the Working Time Directive requires commission to be included in holiday pay and, if so, what is the appropriate basis for calculating the appropriate remuneration for paid annual leave.
Advocate General Bot considered that effective protection of the right to paid annual leave requires commission to be included when calculating holiday pay. ECJ case law has established that paid annual leave is a particularly important principle of EU law from which there can be no derogation, and that the purpose of paid annual leave is to enable the worker to enjoy a period of relaxation and leisure. The holiday pay required by Article 7(1) is to enable a worker to actually take the leave to which he is entitled. However, Article 7 makes no reference to how such pay is calculated. In British Airways plc v Williams and ors (Brief 901) the ECJ held that where remuneration comprises several components, any aspect linked intrinsically to the performance of the tasks the worker is required to carry out, and in respect of which a monetary amount is included in the calculation of the worker’s total remuneration, must be taken into account when calculating pay during annual leave. By contrast, components of remuneration which are intended to cover occasional or ancillary costs do not need to be taken into account.
Thus, the Advocate General concluded that commission such as that received by L should be included in the remuneration that a worker is entitled to during annual leave. The commission is directly linked to the work L normally carries out and, although it fluctuates from month to month, such commission is permanent enough for it to be regarded as forming part of L’s normal monthly remuneration. Failing to include the commission in his holiday pay is capable of deterring him from exercising his right to paid annual leave. Advocate General Bot rejected British Gas’s argument that the rate of commission already takes into account the fact that workers will be unable to generate commission during annual leave. He considered that this would be contrary to the ECJ’s decision in Robinson-Steele v RD Retail Services Ltd and two other cases (Brief 802) that Article 7 precluded ‘rolled up’ holiday pay – whereby employers incorporate holiday pay in the hourly or daily rate of workers. Advocate General Bot concluded that it is for the referring tribunal to determine what methods and rules are appropriate for calculating holiday pay which includes a component to reflect commission. However, he considered that the average amount of commission received over a representative period, such as 12 months, would be appropriate.