The European Court of Justice’s (ECJ) ruling in Lock v British Gas Trading Limited and others must be taken into account when calculating an employee’s entitlement to paid holiday.
The case concerned an employee whose commission tended to be paid weeks or months after it was actually earned. As a consequence, he received commission while he was holiday, but because he didn’t earn commission during that time, he experienced a drop in commission over the subsequent weeks and months.
The ECJ said the subsequent shortfall could discourage employees in similar positions from taking holiday. Therefore, holiday pay needs to accommodate commission that would have been earned if at work.
However, the ECJ left it to national law to decide how such commission is taken into account.
The case has been referred back to the employment tribunal and is likely to hit the appeal courts again in due course, but how do employers comply with the ruling in the meantime?
One option would be to do nothing, hoping that the appeal courts will find that UK law is incompatible with the ECJ ruling, and therefore private sector employers do not need to do anything until Parliament changes the law.
But if there is a way in which the UK law can be interpreted to follow EU law, then that will happen.
Other options include giving employees a form of commission bonus when they go on holiday, based on commission in previous weeks to compensate for the drop in commission after the holiday, or carry out an end-of-year grossing-up of commission.
But these are far removed from what UK legislation currently says about calculating holiday pay.
Employers that are able to change commission schemes may make commission harder to earn, thereby counterbalancing the potential double-digit percentage increase in commission.
Adam Lambert is an employment partner at Clyde and Co
