Holiday Pay Policy & Definition6 June 2014
In Lock v British Gas Trading Ltd, the Court of Justice of the European Union (CJEU) has held that, where a worker’s remuneration includes contractual commission, determined with reference to sales achieved, the Working Time Directive precludes statutory holiday pay based on basic salary alone. If commission payments are not taken into account, the worker will be at a financial disadvantage as no commission will be generated during the holiday period. This might deter the worker from taking leave – which would be contrary to the Directive’s purpose.
Most employers are likely to carry on regardless and claim that either the level of salary and/or commission contains an element of “rolled-up” commission for the holiday period. However, unless this can be evidenced for existing schemes – or increased commission levels are now introduced to specifically address the issue, these arguments are likely to fail. Whilst this would ordinarily mean a relatively modest claim (if brought by an individual), 1/11th (5 weeks) of commission payments in (for instance) the finance services sector could be a very substantial claim.
It will be interesting to see how the Leicester Employment Tribunal assesses the lost payments. The CJEU stated that the calculation should be based on the average commission earned “over a reference period which is considered to be representative, under national law”. This is likely to be a circa 12 week period.
The case follows (amongst others) British Airways plc v Williams & Ors  which held that an individual’s holiday pay should be based on their “normal remuneration”. Holiday pay should therefore include any supplements to basic salary that are intrinsically linked to the “performance of the tasks which the worker is required to carry out under [their] contract of employment”.
This Supreme Court judgment was made in relation to claims from thousands of British Airways pilots represented by BALPA (the British Air Line Pilots Association). During annual leave, the pilots were receiving remuneration encompassing basic fixed pay alone. They argued that they should also be receiving: (i) Flying Pay Supplement; and (ii) Time Away From Base (TAFB) allowance both of which vary according to the time spent flying and are paid on top of basic salary (albeit that the TAFB allowance was said, by some, to also include cover for ancillary costs as well).