Out-Law News 2 min. read

CJEU: employees' right to paid annual leave cannot be limited to basic salary

An employee whose "normal remuneration" consists of regular commission as well as a basic salary must have that commission taken into account for the purposes of calculating holiday pay entitlement, the EU's highest court has ruled.

Responding to a referral from the UK's employment tribunal, the Court of Justice of the European Union (CJEU) said that holiday pay, in principle, must be "determined in such a way as to correspond to the normal remuneration received by the worker". It was up to the national court or tribunal to calculate the worker's entitlement to commission over the holiday period "on the basis of an average over a reference period which is considered to be representative", it said.

The case will now return to the employment tribunal for a final ruling.

The Working Time Directive gives every EU worker the right to paid annual leave of at least four weeks. The Working Time Regulations, which implement the directive into UK law, state that employees must receive a week's pay for each week of leave.

Mr Lock, a salesman, was paid commission on a monthly basis that, on average, made up about 60% of his pay. This commission, which was based on sales, was paid several weeks after a contract was concluded between Lock's employer and its new customer. Lock was on paid annual leave between 19 December 2011 and 3 January 2012, during which period he did not make any sales or generate any commission. This affected his salary during the months after his annual leave.

In its judgment, the CJEU said that the Working Time Directive had to be interpreted "in the light of its wording and of the objective pursued by it". It said that the right of every worker to paid annual leave was "a particularly important principle of European Union social law from which there can be no derogations".

It dismissed an argument by Lock's employer that, because he received commission earned during the weeks preceding his paid annual leave while on holiday, his holiday pay was "comparable to that earned during periods of work". The CJEU refused to accept that argument; finding that the reduction in Lock's earnings in the months following the period during which he could not earn commission would have been enough to discourage him from taking the leave to which he was entitled.

"Notwithstanding the remuneration received by the worker during the period in which he actually takes his annual leave, he may be deterred from exercising his right to annual leave, given the financial disadvantage which, although deferred, is nonetheless genuinely suffered by him during the period following that of his annual leave," it said in its judgment. "Such a reduction in a worker's remuneration in respect of his paid annual leave, liable to deter him from actually exercising his right to take that leave, is contrary to the objective pursued by [the directive]."

Turning to the question of how Lock's "normal remuneration" for the purposes of his holiday pay should be calculated, the CJEU said that "any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided" must be taken into account. This was consistent with its findings in a 2011 case involving a group of British Airways pilots, who were entitled to receive a flying pay supplement while on leave.

"In the case in the main proceedings ... the commission received by Mr Lock is directly linked to his work within the company," the court said. "Consequently, there is an intrinsic link between the commission received each month by Mr Lock and the performance of the tasks he is required to carry out under his contract of employment."

"It follows that such commission must be taken into account in the calculation of the total remuneration to which a worker, such as the applicant in the main proceedings, is entitled in respect of his annual leave," the court said.

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