Member Article

Holiday pay cases continue to make their way through the court system. One of the most significant of these, brought by Mr Smith against Pimlico Plumbers, has hit the press again, leaving employers with yet more uncertainty.

Background

Workers are entitled to 5.6 weeks' paid holiday per year under the Working Time Regulations 1998 (the “WTR”), made up of 4 weeks’ leave derived from the Working Time Directive (Euro-Leave) and an additional 1.6 weeks' leave under the WTR. The WTR do not permit carry over of holiday. However, case law has established that the WTR should be read as allowing carry over of Euro-Leave where a worker is prevented from taking holiday due to sickness or family-related leave, for up to 18 months after the end of the holiday year in which it is accrued.

In November 2017, the European Court of Justice ruled in the case of King v The Sash Window Workshop Ltd that a salesman, who was found by the Courts to have worker status, had not been allowed to take the paid holiday to which he was entitled and that, as a result, he was entitled to carry over all of his accrued untaken Euro-Leave for an indefinite period. Mr King had been regarded as self-employed by Sash Windows, and as a result he had never been offered paid holiday (nor had he ever asserted the right to it. Once, however, he was found to be a worker, he successfully argued that he had accrued holiday throughout the 13-year period that he worked for Sash Windows and that, as he had been prevented from taking the holiday because Sash Windows wrongly refused to pay for it, he was entitled to carry over his Euro-Leave indefinitely and be paid in lieu for all of his accrued Euro-Leave at the end of his engagement.

In the case of Mr Smith, the issue was whether the same reasoning should be applied where the individual had been able to take leave but had not been paid for it.

Mr Smith was similarly regarded as being self-employed but was subsequently found by the Courts to have worker status following his claim in 2018. He had taken various days off work over the course of six years but had not been paid for them. As a worker, however, he was entitled to holiday pay. The Employment Tribunal initially dismissed his claim, on the basis that they found it to be out of time; his last unpaid period of holiday was taken in February 2011 and he had 3 months from that date to bring his claim for unlawful deductions (rather than from the later date in August 2011 when his contract was terminated). Mr Smith challenged this ruling with the EAT, arguing that based on the decision in King he was entitled to a backdated payment for all of the unpaid Euro-Leave he had taken during his employment up to the point of termination and that time for bringing his claim therefore ran from the termination date.

However, the Employment Tribunal held that the principles in King did not apply as they should only apply where the worker has not taken their holiday because they would not be paid for it, not where they have taken it (as Mr Smith had done) but have not been paid for it. Mr Smith appealed to the EAT, who upheld the Tribunal’s decision. The EAT confirmed that the purpose of the principles in King were to ensure that workers are given enough time to rest and that they are not dissuaded from exercising their right to take annual leave. Mr Smith had not been so dissuaded as he had taken leave. As a result, the only claim available was an unlawful deduction of wages claim which had to be made within 3 months of the last period of holiday Mr Smith had taken rendering his claim out of time. Mr Smith appealed this decision to the Court of Appeal.

Latest Ruling

The Court of Appeal considered whether the right to holiday pay could be carried over from one year to the next in circumstances like those of Mr Smith and they decided to uphold Mr Smith’s claim. The Court took the view that the right to annual leave and to payment during that leave were both part of the same right and that where an employer refuses to pay for leave it is preventing the worker from exercising their statutory rights. Mr Smith’s situation was therefore the same as Mr King’s (in the Sash Window case referenced above) and he was entitled to payment in lieu of all of his accrued Euro-Leave on termination. As a result, his claim was also brought in time.

In other words, the right to carry over Euro-Leave applies in the same way as the accrual of holiday pay and the right to paid annual leave is not subject to any preconditions. A worker will only lose the right to take Euro-Leave at the end of a leave year where they have clearly been given the opportunity to take paid annual leave during the leave year, have been encouraged to take it and have been made aware that the leave would be lost if not taken by the end of the year.

Impact

The impact that this ruling could have on employers is significant, particularly for those in the gig economy or other sectors which rely on self-employed individuals who may in fact be deemed to have worker status and therefore rights to paid annual leave.

If the individual has not been allowed to take paid leave, then following this decision, they will be entitled to carry over the Euro-Leave indefinitely and either take it while they remain engaged or else be paid in lieu of it on termination. This latest ruling could mean that workers could claim for any unpaid Euro-Leave since their employment began.

Further, the Court made some provisional contradictory remarks in this latest decision concerning the previous ruling in Bear Scotland Ltd v Fulton, where it was established that a series of unlawful deductions could be broken if there had been a gap of three months or more between payments. Bear Scotland remains binding on Tribunals at present but if this is to be taken as a direction the travel, it could have a significant impact on the value of holiday pay claims going forwards.

Employers are well advised to audit their workforce to identify any potential independent contractors who could claim to be workers in light of this decision as well as making sure that there are clear communications encouraging workers to take their statutory holiday during the relevant leave year.

Holiday pay claims have been a ripe area for employment litigation for many years and we consider that this trend is set to continue.

If you feel that your organisation would benefit from an annual leave audit to assess your current compliance, please get in touch with us.