Sales Vacation Pay Must Include Commission, EU Court Says

Vacation pay for sales staff including workers at financial firms may be boosted by a ruling by the European Union’s top court that said commissions must be part of holiday compensation.

Pay during time off can’t be based on basic salary alone, the EU Court of Justice said today.

The ruling “is likely to affect those in the banking and insurance industries where commission is often paid on the amount of sales or trades achieved over monthly periods,” said Jo Keddie, an employment lawyer at Winckworth Sherwood in London. “The financial consequences could be very significant” and businesses may decide to reduce commission and introduce more discretionary bonuses, she said.

Sales staff may be deterred from taking time off they are entitled to if they don’t get higher vacation pay, according to the ruling, that stemmed from a U.K. case involving a salesman at British Gas Trading Ltd. He argued that his vacation pay should also be based on the 60 percent of his average remuneration that he gets from commission on sales.

The case was backed by Unison, the U.K.’s largest union, which said last year that the man wouldn’t take more than five consecutive days of annual leave to avoid losing pay.

British Gas, a unit of Centrica Plc, is “examining the issue” raised by the case “as part of a wider review of employee incentives,” said Ralph Nathan, the company’s director of employment law in an e-mailed statement. “Many of our people receive commission as part of doing their job so we’re reviewing in detail” the ruling.

The Luxembourg-based court said the U.K. employment tribunal should decide on calculating vacation pay.

The ruling comes in the wake of bonus curbs for bankers imposed by EU rules that targeted incentives that may encourage risk-taking in the financial industry.

The case is C-539/12 Lock v British Gas Trading.

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