As anticipated in January's update, the European Court of Justice has followed the Attorney General's opinion in determining that workers' holiday pay should reflect any additional payments they would normally receive had they been working. This includes paying commission or compensating for the lost opportunity of earning commission whilst on holiday.
Under the Working Time Directive, the aim is to ensure that staff are not deterred from taking leave. In this case (British Gas v Lock) Mr Lock was a salesman on a basic salary with variable commission which was paid a month in arrears. When he took leave he would be paid his basic pay whilst he was away, plus any commission owing from the previous month, but then he would lose out on commission the following month due to the fact that he was not selling whilst on holiday.
It has been left to the national courts to determine how this pay should be calculated, and it is likely to be some time before our Working Time Regulations are updated accordingly. In the meantime, now that we have this ruling, employers should consider taking steps to address the issue as they could face costly claims for back pay at some future point.
Many employers already have to work out holiday as an average over the 12 weeks preceding the holiday period (i.e. where employees have variable hours and/or pay), so it seems sensible to conclude that a similar averaging approach to commission would be likely to meet these requirements.