Holiday Pay and Unearned Commission – The CJEU Rules

In the latest in a series of cases on the correct calculation of holiday pay (Lock v British Gas Trading Limited and Others), the Court of Justice of the European Union (CJEU) has followed the preliminary opinion handed down by 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.

The CJEU held that 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 in respect of his paid annual leave, which would be liable to deter him from actually exercising his right to take that leave, is therefore contrary to the objective pursued by Article 7 of the WTD.

As regards how the commission-based element of holiday pay should be calculated, the CJEU considered 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.

Employers are advised to review their contractual leave arrangements in the light of this ruling. We can advise you on your individual circumstances.