Calculating holiday pay following Lock v British Gas Trading & others

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We have received several calls from clients regarding the recent case in the European Court of Justice (ECJ) of Lock v British Gas Trading and others.

Mr Lock, a sales consultant with British Gas, is paid a basic salary plus monthly commission which fluctuates dependent on his sales achievement and he is only paid after a contract has been agreed and signed by the customer.

Mr Lock took holiday from 19th December 2011 to 3rd January 2012 and was paid his basic pay plus the commission that he had earned during the previous weeks. As he did not work during his holiday period, he was unable to make any sales or follow up potential sales and this affected his pay in the following weeks. He brought a claim in the Employment Tribunal (ET) for outstanding holiday pay on the basis that the money he was paid whilst on holiday did not reflect what he would have earned in commission.

The ET requested guidance from the ECJ on whether or not member states should take measures such that a worker is paid commission that he would have earned during his holiday. The ECJ concluded that a worker must receive their normal remuneration during periods of annual holiday and the objective of holiday pay is to put the amount of money received during annual leave at the same level that it would have been had they not taken the leave.

British Gas argued that this had occurred as Mr Lock was paid not only his basic salary but also the commission he had earned during the previous weeks but this was rejected by the ECJ which held that although he received basic pay and commission whilst on leave, there was a deferred financial disadvantage suffered during the period following his holiday which might deter him from taking annual leave in the future. As he was unable to generate any commission during the time he was on holiday, he was only paid basic salary following his holiday.

The ECJ stated that there is an “intrinsic link” between the commission received each month by Mr Lock and the performance of his responsibilities under his contract of employment and therefore commission must be taken into account in the calculation of holiday pay.

Don’t panic about this just yet as the UK’s rules on the calculation of holiday pay will have to be referred back to the UK Courts in the light of this decision but it’s worth bearing in mind there may be a requirement to review how you calculate holiday pay in the future which may potentially be costly to the employer. It might be worth considering how commission schemes can include some sort of averaging provision to make appropriate allowance to cover holiday periods.

It’s very likely that if overtime is regularly earned, then provision may need to be made for some kind of overtime payment to be made during periods of holiday as well.

Watch this space…….

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