by Breda O'Malley May-13-2014 in Employment Law
The Court of Justice has held that a sales consultant’s annual leave remuneration cannot be limited to their basic salary alone where such a worker is paid a basic salary and commission calculated on the basis of sales made by them. In such circumstances, that commission must also be included in the calculation of the employees annual leave entitlement so as not to deter an employee from taking annual leave.
Case C-539/12 – ZJR Lock v British Gas Trading Limited concerned a request for a preliminary ruling regarding the interpretation of Article 7 of Directive 2003/88/EC of the European Parliament and Council of 4th November 2003 concerning certain aspects of the organisation of working time.
Article 7, headed ‘Annual Leave’ states that Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice. The minimum period of annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
In this case, Mr Lock, an Internal Energy Sales Consultant with British Gas and he was involved in persuading business clients to buy energy products. He was paid a basic salary of £1,222.50 sterling per month plus an entitlement to commission, calculated by reference to the number and type of new contracts concluded by British Gas. This commission generally comprised about 60% of his basic salary. It varied from month to month and was not paid at the time that the work which generated the commission was done, but several weeks or months following the conclusion of the sales contract with British Gas.
Mr Lock took annual leave from 19th December 2011 until 3 January 2012. As a result, his salary following his annual leave only comprised his basic salary and with no commission, meaning his resulting salary for that month was significantly less than if he had not taken annual leave. As this had an adverse impact on his earnings in that month, Mr Lock took a case to the Employment Tribunal to claim for the remainder of his holiday pay, which he took the view he was entitled to for the period of his annual leave.
The question referred to the Court of Justice was whether the commission earned by an employee should be taken into account for calculating payment during annual leave under article 7, and if so, how the commission should be calculated during his absence from work on annual leave.
The Court pointed out that in the case law; the entitlement of every worker to paid annual leave must be regarded as a ‘particularly important principle of European Union social law from which there can be no derogations’ (1) . Further, the Court went on to state that the meaning of ‘annual leave’ within the Directive meant that remuneration must be maintained and that workers must receive their ‘normal remuneration for that period of rest’ (2) . The purpose of providing payment for that leave is to put the worker, during that leave, in a position which is, as regards salary, comparable to periods of work.
The Court rejected the argument of the British Government and British Gas that the objective of the Directive was being achieved in circumstances where the applicant was receiving during his period of paid annual leave, a salary comparable to that earned during periods of work, as he received, during his annual leave, not only his basic salary but also commission resulting from sales which he had achieved during the weeks preceding that period of annual leave. It was noted by the Court that the worker may be deterred from exercising his right to annual leave, given the financial disadvantage which is suffered by him during the period following his annual leave, notwithstanding that during the actual period of leave he will receive the commission worked in the period prior to the annual leave. In this case, as commission comprised about 60% of his overall salary, this would be a significant reduction in the salary of the worker. The fact that the reduction occurred after the period of annual leave was found to be irrelevant. The fact that the reduction in the worker’s remuneration was liable to deter him from actually exercising his right to take that leave was contrary to the objectives of article 7. Accordingly, the Court held that the national authorities were precluded, where an employee’s salary was fixed by reference to basic salary and commission, from paying his annual leave composed exclusively of his basic salary.
The Court was then asked, in circumstances where the employee was entitled to be paid both basic salary and commission during annual leave, what were the methods of calculating such remuneration. The Court stated that remuneration paid in respect of annual leave must, in principle, be determined in such a way as to correspond to the normal remuneration received by the worker. Where the remuneration is comprised of several elements, the determination of the workers normal remuneration would require specific analysis. The Court went onto state that all components of total remuneration relating to the professional and personal status of the worker must continue to be paid during his paid annual leave and so any allowances relating to seniority, length of service and to professional qualifications must be maintained. It was pointed out that the commission received by the worker was directly linked to the performance of his tasks every month under his employment, and it followed that such commission must be taken into account in the calculation of the total remuneration to which the worker is entitled in respect of annual leave.
It was held that it was for the national court to calculate the commission to which a worker was entitled to in respect of annual leave on the basis of the Court’s case law and the objective pursued by Article 7.
(1) Case C-214/10 KHS EU:C:2011:761
(2) Joined Cases C-131/04 and C-257/04 Robinson-Steele and Others EU:C:2006:177, paragraph 50, and Joined Cases C-350/06 and C-520/06 Schultz-Hoff and Others EU:C:2009:18, paragraph 58
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About the Author
Breda O'Malley
Breda practises in both Employment and Commercial Law and is Partner and Head of the Employment Law team at Hayes solicitors. Breda has trained and qualified as a mediator with the UK based, internationally renowned Centre for Effective Dispute Resolution (CEDR). Breda practices as a mediator of commercial, employment, boardroom, charity trustee and shareholder disputes.