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.

6 thoughts on “Including Commission in Holiday Pay

  1. What a mess this would make. Of course if the ECJ goes down this route it is quite possible some employers would react to make the overall effect cost neutral, by adjusting its pay structure to reduce sales commission levels by 10.8% (which if my maths is correct, is the percentage of the year an employee spends on statutory annual leave based on the 5.6 weeks under the WTR), and then paying the same amount back as “holiday pay”.

  2. I think Mark is right about the likely reaction. But think of the massive back pay claims!

    I presume those who pay commission annually can simply direct that no-one takes holiday for the next 12 weeks.

    Fundamentally, for me, commission is a share of income you generate. I don;t see why you should be entitled to a share of notional income that you would have generated had you been working.

  3. Employers would just adjust the scheme.
    Most Employers already pay a % of actual commission earned in monthly pay cheques (e.g. 75%) and then if the employee is there at the end of the year, the balance is paid. They do this in case of deals that fall through or returned goods etc. They could easily incorporate a % as holiday commission pay that is added in to the final monthly pay cheque each year, by reducing the commission on each sale as Mark Tarran said.
    I think if Employees push this, they will not end up any better off but Employers will again be forced to roll out new time wasting procedures to cover themselves.

  4. I think that the AG’s opinion in Lock follows properly the direction of travel clearly signposted for us all in Robinson, Stringer and Williams. Auld LJ said that a person shouldn’t get paid for OT not worked when away from work and not working OT. His comments look, in my view, outdated. I disagree respectfully with Sean. If holiday needs to be protected so that, as a matter of principle, one gets the same pay whilst at work as when on holiday then OT and other pay should be treated consistently. Employers may reduce pay over the year in order to equalise holiday pay with at work pay but that doesn’t matter. What matters is that rest and recuperation is paid the same as if you were at work.
    The argument that all employed by BG took holiday so weren’t dissuaded by underpayment is silly. Get over it, holiday pay should be the same pay as that which you could earn when attending work. The problem is that historic pay structures didn’t recognise that. It’s just time to modernise in the same way those poor men had to tear down their page 3 posters in their workplaces…..
    Sean is absolutely right and typically on the money with his advice. Well advised employers should consider stopping all holiday for 12 weeks, change the basis for future holiday pay and thereby aim to protect against historic claims: claims which might threaten their very businesses.

  5. I presume also that this only affects the 4 weeks’ “WTD” holiday and not the extra “UK” 1.6 weeks or contractual holiday pay? Nightmare scenario ensues.

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