The rules surrounding the calculation of holiday pay are notoriously complex and have resulted in a number of claims before the Employment Tribunal. Given the Advocate-General's recent opinion, this situation is unlikely to change anytime soon.
Under Regulation 16 of the Working Time Regulations 1998 ("WTR"), a worker is entitled to be paid during statutory annual leave at a rate of a week's pay for each week of leave, calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996. If the worker has normal working hours but their pay varies, they are entitled to holiday pay based on their average pay during those normal working hours over the previous 12 working weeks.
Until recently, only payments due under the employment contract for normal working hours were taken into account for these purposes. However, the Employment Tribunal in Neal v Freightliner Ltd ET/1315342/12 put that position in doubt, by deciding that holiday pay should take account of pay that is "intrinsically linked" to the performance of tasks required to be carried out under the employment contract. Therefore, although Mr Neal's contract only required him to work 35 hours a week, in reality he almost always worked overtime and the Employment Tribunal found that Mr Neal's holiday pay should take account of the premium he was paid for the overtime he regularly worked.
Following on in this vein, Advocate-General Bot, giving his opinion in the case of Lock v British Gas Trading Ltd and ors Case C - 539/12, has now stated that the Working Time Directive ("Directive"), from which the WTR are derived, requires commission to be taken into account where this is also directly linked to the work carried out under the employment contract.
Brief details of case
Mr Lock is a sales consultant for British Gas receiving commission on a monthly basis. The amount of commission varies depending on the number and type of sales he achieves, paid at the time the sales contract is entered into, not when Mr Lock actually carries out the work. Mr Lock took holiday from 19 December 2011 to 3 January 2012 during which time he was paid basic pay and the commission he had earned in the previous weeks. However, as he did no work during his holiday, he did not generate any commission and therefore his salary was lower in the months following him taking holiday. Mr Lock brought a claim for outstanding holiday pay in the Employment Tribunal. The question of whether commission should be included in holiday pay and, if so, how this should be calculated, was referred to the Court of Justice of the European Union ("CJEU") by the Employment Tribunal.
In his opinion, Advocate-General Bot stated that the holiday pay required under the Directive is to enable a worker to actually take the leave to which he is entitled, and that commission such as that received by Mr Lock should be included in the calculation of holiday pay, since it is directly linked to the work he normally carries out. Although the amount of Mr Lock's commission varies on a monthly basis, it is nevertheless permanent enough to be regarded as part of his normal monthly pay. The Advocate-General also expressed concern that a failure to include commission in the calculation of holiday pay could deter Mr Lock from taking holiday. However, he said it was for the Employment Tribunal hearing Mr Lock's case to determine the mechanism for calculating the amount of commission to include.
What happens now?
If the CJEU follows the opinion of the Advocate-General, which it normally does, workers who are paid wholly or partly by commission will be entitled to have this reflected in their holiday pay, at least in respect of the 4 weeks leave entitlement provided for under the Directive.