Article 7 of the Working Time Directive (which provides for paid annual leave) does not stipulate what that pay should include, nor how it should be calculated. In Lock v British Gas Trading Ltd, the Court of Justice of the European Union (CJEU) held that holiday pay must be determined in such a way as to correspond to the worker’s normal remuneration, including all the contractual aspects of their role such as commission for completed sales.
Mr Lock had been employed by British Gas as an Internal Energy Sales Consultant since 2010. He was paid a basic salary and commission which was only paid once the contract between British Gas and the client was confirmed.
Mr Lock was on paid annual leave from 19 December 2011 to 3 January 2012. For December 2011, he received basic pay of £1222.50 and commission of £2350.31. On average, he received an average monthly commission of £1912.67 in 2011.
As he did not work during his annual leave, he did not generate any commission which adversely affected his salary in the period following his annual leave. He lodged a tribunal claim for unpaid holiday pay.
Question for CJEU
The tribunal asked the CJEU to decide whether the commission which Mr Lock would have earned during his annual leave should have been taken into account when calculating his holiday pay and, if so, how it should be worked out.
The Court started by pointing out that the right to paid annual leave was a particularly important principle of European Union social law from which there could be no derogations.
Although article 7 of the Working Time Directive did not specify what pay workers should receive, it had to be interpreted in the light of the principle underpinning it. As the purpose of holiday pay was to put workers in a situation which was comparable to when they were at work, that meant they must be paid as normal during annual leave.
In this case, Mr Lock could not generate any commission during his annual leave with the result that in the period after taking holiday he was only paid his basic salary. That adverse financial impact might deter him from taking his leave, particularly given that commission represented on average over 60 per cent of his monthly wage.
The Court therefore found that this reduction in holiday pay was liable to deter him from exercising his right to take annual leave, which was contrary to the objective pursued by the Working Time Directive.
With regard to how to calculate the commission, the Court again observed that holiday pay must, in principle, be determined in such a way as to correspond to the worker’s normal remuneration. Any pay included in that remuneration must therefore reflect all the contractual aspects of their role, such as commission for completed sales.
In terms of Mr Lock’s commission, it was tied to his contractual role of selling British Gas energy to customers and must therefore be taken into account when calculating his holiday pay. However, it was for the national court or tribunal to work that out, on the basis of the rules and criteria set out by the case law of the Court of Justice of the European Union and in the light of the objective pursued by article 7 of the directive.
This is another case where the CJEU have confirmed that holiday pay should represent normal remuneration and follows the decision in BA v Williams (LELR 292). The issue for workers in the UK is whether the Working Time Regulations which exclude overtime payments can be read to conform with the decision in Williams. The EAT will be considering the issues in the conjoined appeals of Neal v Freightliner and Smyth v (1) Hertel (UK) Ltd (2) AMEC at the end of July 2014. Watch this space….