U.K. Employment Tribunal Confirms That Holiday Pay Should Include Commission

Following on from the European Court of Justice (ECJ)’s decision in Lock v British Gas Trading Limited (reported in July 2014), the UK Employment Tribunal has confirmed that holiday pay should take into account commission where this forms part of an employee’s “normal remuneration”.   

Mr Lock was a sales consultant whose remuneration consisted of approximately 60% commission. When he went on holiday, he was paid his basic salary and the commission from sales that fell due during the holiday period.  However, when he returned to work he suffered a reduced income reflecting the fact that he had not secured any sales during the holiday period.  Mr Lock’s claim was that the effect of the reduced income on the calculation of future holiday pay was a breach of UK law.  The ECJ found that such financial disadvantage might deter an employee from exercising their right to annual leave, which would be contrary to the purpose of EU working time law.  As such, the ECJ ruled that holiday pay should take into account commission where this forms part of an employee’s “normal remuneration”.  This is consistent with the Employment Appeal Tribunal’s recent decision in the case of Bear Scotland Ltd v Fulton UKEATS/0047/13 (reported in December 2014) which held that regular non-guaranteed overtime should be taken into account when calculating holiday pay.

The consequential issues concerning what is an appropriate reference period and how to quantify the commission element of holiday pay will be addressed at a subsequent stage of the Lock litigation and we will keep you updated in this regard.  However, from now on employers would be well advised to ensure that their holiday pay practices reflect these recent decisions.