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Commission part of annual leave entitlement

Every employee is entitled to annual leave, which is paid time-off work granted by the employer. Pursuant to the 2003 EU Directive on the Organisation of Working Time, member states must ensure that every worker benefits from paid annual leave of at least four weeks.

Beyond that minimum, every country regulates nationally the mandatory amount of annual leave entitlement of employees. Depending on the employer’s policies, differing number of days may be offered, and the employee may be required to give a certain amount of advance notice, may have to coordinate with the employer to be sure that staffing is adequately covered during the employee’s absence, and other requirements may have to be met.

The purpose of this right to paid annual leave is to put the worker in a comparable financial position to being at work. The case law of the Luxembourg Court has previously held that employees are entitled to receive ‘normal remuneration’ during their annual leave. Payments, therefore, which are intrinsically linked to the performance of the tasks required to be carried out by the employee under a contract of employment are included in holiday pay calculations.

In advance of the decision of the Court of Justice of the European Union (CJEU), Advocate General Bot released his opinion in a case referred to the CJEU by the Leicester Employment Tribunal where the bone of contention related to the calculation of holiday pay.

A British Gas employee filed a claim before the Employment Tribunal for outstanding holiday pay. He was engaged as an internal sales consultant with the UK energy company. His remuneration, paid on a monthly basis, was made up of a basic salary and a sales commission, the latter accounting for more than half of his monthly remuneration. While the basic salary of this British Gas employee was fixed, the commission was not based upon the amount of work put in but on the outcome of that work, and consequently varied according to the number and type of new contracts entered into. British Gas paid its employee commission several weeks or months after the sales contract with company’s client was entered into.

In 2011, the employee took two weeks’ paid annual leave, during which time his commission comprised his basic pay and the commission that he had earned during the previous weeks. However, since he could not generate commission during his annual leave, his salary was significantly lower in the months that followed. British Gas maintained that in setting its sales targets and commission payments, it already took into account periods of leave when no new sales could be generated.

The Leicester Tribunal referred the case to the CJEU for a preliminary ruling as to whether commission should be included as part of any holiday pay calculation and, if so, how the appropriate amount of commission is to be calculated.

While the amount of commission may fluctuate from month to month, it is nonetheless permanent enough to be regarded as forming part of his normal pay

In his opinion, Advocate General Bot concluded that to ensure effective protection of the right to paid annual leave, the British Gas employee was entitled to be compensated for the fact that he would be unable to make sales and earn commission during his leave. This approach ensures his leave is used for rest and relaxation and that he is not deterred from taking his holiday entitlement. The Advocate General clarified that in this particular case, the commission is directly linked to the work normally carried out by the employee. While the amount of commission may fluctuate from month to month, it is nonetheless permanent enough to be regarded as forming part of his normal pay as it “constitutes a constant component of his remuneration”.

The Advocate General clarified that only those payments that are linked to the performance of a worker’s employment and have some degree of permanence should be considered when calculating holiday pay. By contrast, payments intended to cover occasional or ancillary costs arising out of tasks carried out by the worker need not be taken into account. The Advocate General suggested that the method of calculation and reference period should be left for each member state to determine.

Although the Advocate General’s opinion is not binding on the Luxembourg Court, it may be followed particularly since the opinion considered well-established EU case law, which supports his view that ‘normal remuneration’ includes commission. Should the CJEU follow the Advocate General’s opinion when it hears the case this year, it will set a binding precedent that requires employers to include commission when calculating a worker’s holiday pay.

josette.grech@onvol.net

Josette Grech is adviser on EU law at Guido de Marco & Associates.

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