• ECJ Holds Holiday Pay Should Include Commission

    In Lock v British Gas Trading Ltd and ors, the ECJ has held that, where a worker’s pay ordinarily includes commission, his or her salary should not be reduced to basic pay in periods following annual leave because he or she has been unable to earn commission while on annual leave. Such a practice would be liable to deter a worker from exercising his or her right to paid annual leave under Article 7 of the EU Working Time Directive (No.2003/88). The fact that the reduction in remuneration occurs after the period of annual leave is irrelevant.

    L, a sales consultant for BGT Ltd, was paid basic salary plus commission on a monthly basis. The commission fluctuated as it was based on sales but, on average, it made 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 tribunal made a reference to the ECJ to clarify whether such an arrangement, where commission was lower as a result of taking periods of annual leave, was precluded under Article 7 of the Working Time Directive.

    The ECJ began by noting that the entitlement to paid annual leave must be treated as a particularly important principle of EU law from which there can be no derogations. Although the wording of Article 7 does not give an express indication as to what remuneration a worker is entitled to while on annual leave the ECJ has stated, in cases such as Schultz-Hoff (Brief 871), that workers must receive their normal remuneration for periods of annual leave. The ECJ considered that the Directive treats entitlement to annual leave and payment for annual leave as two aspects of a single right. The purpose of payment for annual leave is to put the worker in a position, as regards his or her salary, comparable to periods of work.

    The ECJ rejected BGT Ltd’s and the UK Government’s argument that the objective of Article 7, as interpreted by the Court, had already been achieved under L’s current commission arrangements because while L was on annual leave he received a salary comparable to that which he earned during periods of work. Although UK legislation and practice observed the conditions set out in Article 7 as interpreted by the Court during the period of annual leave itself, the ECJ held that L may be deterred from exercising his right to paid annual leave given the deferred financial disadvantage he would suffer following a period of annual leave. This was more likely in a situation such as the instant case where commission represented, on average, 60 per cent of L’s pay. Cases such as British Airways v Williams and ors (Brief 935) show that such a deterrent effect is contrary to the objective pursued by Article 7. The fact that the reduction in remuneration occurs after the period of annual leave is irrelevant.

    The ECJ held that it is for the national court or tribunal to assess the methods of calculating the commission to which a worker, such as L, is entitled in respect of his annual leave on the basis of the rules and criteria set out by ECJ case law and in the light of the objective pursued by Article 7.

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