CJEU Rules on Holiday Pay and Unearned Commission

June 4, 2014

CJEU Rules on Holiday Pay and Unearned Commission

The Court of Justice of the European Union (CJEU) has handed down its ruling in the important case of Lock v British Gas Trading Limited and Others, agreeing with the preliminary opinion of the Advocate General that a correct interpretation of the EU Working Time Directive (WTD) requires that the holiday pay of an employee whose normal remuneration is made up of a basic salary plus variable commission should include an amount equivalent to the sum he would have earned by way of commission had he been working.

Mr Lock's normal salary included a commission based on sales in the previous month, and this represented on average more than 60 per cent of his pay. As he could not achieve sales whilst on annual leave, this meant that his pay for the month following was lower than usual. He brought an Employment Tribunal (ET) claim for outstanding holiday pay.

The ET asked the CJEU to rule on whether, in such circumstances, Article 7 of the WTD required commission to be included in holiday pay and, if so, how it should be calculated.

The CJEU concluded that Mr Lock's holiday pay should include commission. The right to paid annual leave is an important principle of EU law, the purpose of which is to allow a worker time to rest and enjoy a period of 'relaxation and leisure'. A reduction in a worker’s remuneration as a consequence of taking annual leave would be liable to deter him from doing so, contrary to the objective pursued by Article 7 of the WTD.

As to how the commission-based element of holiday pay should be calculated, this must be assessed by the national court or tribunal on the basis of the rules and criteria set out by the case law of the CJEU and in the light of the objective pursued by Article 7 of the WTD.