Mr Lock is an employee of British gas working as an internal sales consultant. His salary is made up of his basic pay plus commission on his sales and on average his commission makes up around 60% of his total pay. British Gas pay commission several weeks (or even months) after the sale is concluded rather than when the sales are made. Mr Lock took annual leave during the period from 19 December 2011 to 3 January 2012. During this period he was paid his basic pay as well as the commission from previous sales due to be paid during this time. In the months after he returned from annual leave he received a reduced amount of commission due to the fact he had not secured any sales during his period of annual leave.
He brought a case to the employment tribunal for unpaid holiday pay on the basis that his holiday pay should have included commission for the sales he would have made had he not been on holiday. The employment tribunal was unsure as to how it should interpret UK legislation in line with the EU Working Time Directive. The Working Time Directive specifies various rights in relation to holiday pay and courts and tribunals must interpret all UK legislation in line with it. However, while the Directive specifies that employees are entitled to paid annual leave it does not specify how this payment should be calculated. There have been some recent conflicting cases in relation to calculating holiday pay when employees earn more than just basic pay so the tribunal deferred judgement on the case and referred several questions to the ECJ.
The ECJ held that EU law requires employers to pay employees their normal pay during periods of annual leave. The court rejected British Gas's argument that this aim was achieved as Mr Lock was paid his basic salary as well as commission from previous sales. They held that Mr Lock suffered a financial disadvantage due to talking annual leave (even though this disadvantage was deferred) as for a period he would only be paid his basic salary and no commission. The Directive aims to ensure all employees take their annual leave entitlement and by not paying Mr Lock for commission he would have made had he been at work he could be deterred from taking annual leave, which is contrary to the aims of the Directive.
As to how holiday pay should be calculated, the court held that where an employee's pay is made up of different components employers must analyse the normal pay an employee receives. In doing so they must include any performance related pay an employee receives. If a claim for holiday pay is made, courts and tribunals must determine whether the employee's calculation is in line with the objectives of the Working Time Directive.
The Lock case will have far reaching consequences for many employers. Given the extent of the potential liabilities (past and future) employers should consider carefully how to react, with legal advice being taken to work out the best way forward.