Commissions to be included in the payment of annual leave?
By Jeffrey L. Kenens, TeekensKarstens advocaten notarissen
The EU’s Working Time Directive (2003/88/EC) requires EU countries to guarantee paid annual leave of at least 4 weeks per year for all employees. In some cases, the question arises as to what amount the employer must pay an employee while on annual leave. Is it just the gross salary or does one have to include other elements of the total remuneration package as well, like commissions received by the employee in the past?
In the case of Williams/British Airways (C-155/10), the European Court of Justice held in 2011 that variable components in pay, such as bonuses, must be included in the amount of pay that the employee receives while he is on holiday. According to the European Court of Justice, any inconvenient aspect which is linked intrinsically to the performance of the tasks which the employee is required to carry out on his contract of employment and in respect of which a monetary amount is provided, which is included in the calculation of the employee’s total remuneration, must necessarily be taken into account for the purposes of the amount to which the employee is entitled during his annual leave. By contrast, the components of the employee’s total remuneration, which are intended exclusively to cover occasional or ancillary costs arising at a time of performance of the tasks which the work is required to carry out, need not to be taken into account in that calculation.
In another case, the European Court of Justice ruled in 2014 that if a commission received by an employee is directly linked to their work within the company, that commission must also be taken into account in the calculation of the total remuneration to which an employee is entitled in respect of their annual leave. The European Court of Justice held that the methods of calculating the commission to which an employee is entitled in respect of his annual leave must be assessed by the national court on the basis of the rules and criteria set out by the court’s caselaw (case Lock/British Gas, C 539/12). The UK Employment Appeal Tribunal (EAT) determined in February 2016 that commission had to be taken into consideration when calculating holiday pay. However, British Gas has appealed so this leaves employers in the UK waiting for a definitive answer on whether they have to include commission payments when calculating holiday pay.
Under Dutch law, the commission must be taken into account for the calculation of paid annual leave if, for example, the amount of that commission is fixed by reference to the sales contracts entered into by the company as a result of the sales achieved by the employee. In this case, the commission received by the employee is directly linked to its work within the company.
The next question is how to calculate the commission as part of the annual leave payment. As previously stated, the methods of calculating the commission must be assessed by the national court. However, under Dutch employment law there is no statutory provision for the method of calculating nor for the assessment of the representative period. The Cantonal Court in Amsterdam ruled in 2012, with reference to European Court of Justice case law, that a bonus had to be taken into account in the calculation of remaining holiday pay at the end of the contract of employment. The average bonus is calculated by taking the average of the previous five bonus years, as annual bonuses tend to fluctuate a lot from one year to the next. The court also ruled that even pension premiums to be paid by the employer must be taken into account for the calculation of the pay of any remaining annual leave at the end of the contract of employment. In another case, the Cantonal Court in Utrecht ruled in 2007 that an average period of 12 months was deemed to be representative for the calculation of an average bonus to be included in any remaining holiday pay at the end of the employment contract. More generally, the court decided that a representative period must be close to the end of the employment contract and the average amount of the commissions should correspond to the amount of recent commissions.
Based on Dutch case law, it seems that an employer may apply a 12-month period as a representative timeframe for the calculation of an average commission to be included in annual holiday pay, unless the specific circumstances ask for another reasonable calculation. Finally, please note that it seems to be possible to agree upon another definition of holiday pay in regard to non-statutory paid leave only. This would mean that an employer may agree with a Dutch employee that non-statutory holidays are paid less (i.e. without the average commission).
Jeffrey L. KenensTeekensKarstens advocaten notarissen, Leiden, The Netherlands
Jeffrey Kenens is a Partner at TK and part of the international Corporate Employment Law team.
TeekensKarstens advocaten notarissen (TK) is a full service Dutch law firm with extensive experience in the field of international law. TK has established specific international teams to provide international clients with tailor-made services and information.
Published: November 2016 l Photo: Colourbox.de - Andrey Armyagov