Sales staff are entitled to be paid commission even when they are on holiday, the European Union's top court said on Thursday (22 May), because stripping them down to a basic salary would discourage them from taking a vacation.
The ruling, which followed legal action by a salesman at British Gas, will impose extra costs on companies with a sales force. It overrules the existing law in the United Kingdom and requires it to be changed.
Until now, British workers were entitled only to their base salary when on holiday, regardless of whether a commission on sales accounted for a large part of their typical monthly income.
In its judgment, the Court of Justice of the European Union deemed this practice illegal.
It said that workers across the 28-country bloc must receive 'normal remuneration' - including base salary and commission - while on vacation, so as not to penalise those who go on holiday.
It will now be up to national courts to decide how high that holiday commission should be.
The case represents a victory for a sales consultant at British Gas, who took legal action because he received only his base salary while on holiday but no commission because he was not selling.
His commission represented 60% of his monthly wage, on average, and the holiday salary cut spurred him to take action with the U.K. Employment Tribunal.
The EU Court of Justice judged that the lower holiday pay might discourage a worker from taking annual leave, violating the EU's Working Time Directive to protect workers' rights and holiday time.
British Gas, which is part of Centrica Plc, said it was already reviewing employee incentive schemes but was waiting to see how UK legislators would respond.
"We'll need to await the outcome of the U.K. Employment Tribunal's decision to understand the precise impact of this European judgment on UK legislation," said Ralph Nathan, director of employment law at the company.
Stephen Ravenscroft of law firm White and Case said the judgement posed a "significant financial burden" on companies who employ large sales staff and could open "the floodgates to contractual disputes".
"It leaves a lot of questions hanging," he said. "It knocks the issue back to national courts, but with a strong implication: they must find some way of incorporating commission into holiday pay."