Including Commission in Holiday Pay

The Advocate General’s opinion given in Lock v British Gas Trading Ltd & ors is that commission payments should be included in a worker’s holiday pay. If this is followed by the Court then frankly it is going to cause chaos.

The opinion relies heavily on the Court’s decision in Williams & (many, many) others  v British Airways to the effect that pay in respect of annual leave must correspond to the ‘normal remuneration’ received by the worker in so far as that remuneration is ‘intrinsically linked’ to the performance of the worker’s tasks and has a degree of permanence.

In Lock’s case, the employee received commission on sales made which was paid in arrears once a sale had been completed. This meant that Mr Lock did get paid commission when he was on holiday, but that pay was in respect of work he had done before his annual leave began. His complaint was that since he was not able to earn commission while he was on holiday then his future pay would be lower than if he had not been on leave.

The Advocate General accepted that commission was intrinsically linked to the work Mr Lock did and that although it varied from month to month it was an inherent part of his overall remuneration and had the necessary degree of permanence. A failure to take commission into account was capable of deterring Mr Lock from taking his annual leave – all the more so since it made up about 60% of his total remuneration. On that basis the AG concluded that commission did have to be included in calculating Mr Lock’s holiday pay, with the suggestion that he should receive the average amount of commission paid over a representative reference period.

Has Lock really lost anything?

It seems to me that the key flaw in this is that it assumes that if Mr Lock worked for 52 weeks in the year rather than 48 he would make an extra four weeks’ worth of sales. But simply as a matter of common sense that will not be true. There will be quiet periods when the clients themselves are on holiday and so unlikely to close a deal and Mr Lock will also organise his time around the fact that he will be taking holiday at various points over the year. There may well be cases where commission is earned at a constant rate per hour of work done – telesales might work like that – but sales jobs based on closing more complicated deals and building relationships just don’t work that way.

British Gas argued that the commission paid to Mr Lock was based on an annual sales target which took holiday into account. The AG said (para 43 &44) that there was no clear evidence for that and that in any event that would breach the rule against rolled-up holiday in Robinson Steele. I think that misses the point. This isn’t about rolled-up holiday, but about how many sales you would expect a good sales person to make over the course of a year and working out a commission scheme accordingly.

Implications

If this AG opinion is followed then things are going to get pretty complicated. I can think of all sorts of ways in which an employee might try to ‘game’ the system to make sure that no commission would normally be paid during a holiday period, so as to maximise the windfall when the holiday pay is calculated and has to include a sum representing commission. Also, I don’t quite see how just paying an average commission payment during the holiday period itself will work. Mr Lock would normally be paid during his leave for the commission he had earned before taking his holiday. It is his subsequent wages which suffer – when he is paid after his holiday and has lost the opportunity to be paid commission in respect of work he would otherwise have completed. When would that actually need to be paid?

I would love to hear suggestions about how commission schemes could be made to comply with the AG opinion. Whatever the eventual outcome of this case, however, we clearly need to revisit the whole definition of a week’s pay for the purposes of the Working Time Regulations. The definition we have in the Employment Rights Act just isn’t up to the job anymore. I’m sure BIS would be grateful for any suggestions in the comments about how we can define a week’s pay in a way that the CJEU will accept, and which normal mortals can actually understand.