Holiday pay…CJEU confirms UK’s historic approach limiting to basic pay has been wrong

The CJEU (Court of Justice of the European Union) has today has handed down its decision in Lock v British Gas. The decision confirms that Mr Lock’s holiday pay must include an element to represent the ‘commission’ he would have earned had he been at work for British Gas (rather than on holiday): “Article 7(1) of Directive 2003/88 must be interpreted as precluding national legislation and practice under which a worker whose remuneration consists of a basic salary and commission, the amount of which is fixed by reference to the contracts entered into by the employer as a result of sales achieved by that worker, is entitled, in respect of his paid annual leave, to remuneration composed exclusively of his basic salary”.

Although ostensibly only concerning commission, the underlying rationale of the CJEU judgment is of greater import – in its words “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”. Therefore the

The impact of this judgment is expected to be huge, as many workers get far more than basic pay and historically contracts (and even case law) have said that is the only element that holiday pay needs to cover. Indeed, all those at today’s ELA Conference will have heard Caspar Glyn QC described the issue as being the “future area of litigation for the next few years”

So what do employers do? Well doing nothing is not an option – and although the EAT is going to be opining on the issue shortly (given impeding appeals in related cases of dealing with Neal v Freightliner and others) it is probably best to assume the CJEU will be followed. The real questions and issues that need to be dealt with are therefore:

  1. What does the employer do with all the past holiday pay which was limited to basic pay?
  2. Does the employer deal with both past and future holiday pay transparently (informing workers of the mistake and how things will operate in the future) or more covertly (to prevent sowing the seeds of litigation)?
  3. How can one best limit (or manage) the amount of money that is to be paid?

Of course much will depend on the types of business: its staff turnover, contracts, assets to remedy what could be a significant whole. So, there is not necessarily going to be a one-size fits all remedy. But the starting point is to sit down with both a lawyer and those in charge of the business to determine how the business can best manage the ‘holiday pay’ issue. Given the significance of this issue, Cloisters will be rolling out talks which will cover practical aspects and possible solutions to deal with a post-Lock future. If you would be interested in this than please call or email one of our clerks.