Written by Brabners LLP
Important Holiday Pay Update – The European Court of Justice’s findings support holiday accrual rolling over indefinitely and being paid for on termination where a worker has been deterred from taking their paid holiday.
The European Court of Justice (“ECJ”) has confirmed that a worker, on termination of his engagement, was entitled to be paid for a holiday that he didn’t take over several years because the holiday would be unpaid. It was no defence that the business engaging the worker believed he was self-employed. The ruling is likely to have significant implications, particularly for employers operating in the gig economy who are found to have misclassified the status of workers as being self-employed.
The case of King v The Sash Window Workshop Ltd involved a commission-only salesman who worked for Sash Window for 13 years. As he was engaged on a “self-employed” basis, he did not receive any holiday pay during his time at the company. When his contract was terminated, Mr King brought a claim relating to unpaid holiday pay on termination, arguing that he had been deterred from taking his full holiday entitlement each year at Sash Window because he would not be paid for it. In the case, the Employment Tribunal confirmed that Sash Window had erred in the classification of Mr King as self-employed and that he was actually a worker under the Employment Rights Act 1996. This meant that he was entitled to (among other things) paid annual leave. Under the Working Time Directive, every worker is entitled to a minimum of 4 weeks of paid annual leave and a payment in lieu of annual leave may only be made on termination of a worker’s engagement. Accordingly, the Employment Tribunal ruled that Mr King was entitled during his time with the company to paid holidays and, following termination, ordered Sash Window to pay the following:
- A payment for leave entitlement that had accrued but was untaken during his final year at the company.
- A payment for leave that was taken and unpaid in the previous years of his time at the company; and
- Holiday pay for other leave accrued during his employment, but that was untaken.
Sash Window appealed to the Employment Appeal Tribunal (“EAT”) in relation to the latter point. They argued that Mr King’s failure to take holiday in any relevant leave year meant that he had lost his entitlement to that holiday. They also argued that he was out of time to bring such a claim as the time limit for such claims to be brought is within 3 months. The EAT upheld the appeal on the ground that King had not been prevented by reasons beyond his control from taking his annual leave. The case then went to the Court of Appeal who in turn made a referral to the ECJ for clarification of the law in this area.
The ECJ supported Mr King’s position. The ECJ confirmed that where a worker has not taken some or all of their holiday entitlement because they will not be paid for it, the worker can assert that they have been prevented from exercising their right to paid leave. In these circumstances, a worker’s untaken but accrued holiday is carried over until the worker either has the opportunity to take it or their employment is terminated. The ECJ confirmed that placing a limit on the amount of leave that can be carried over in this type of case or a time limit on a worker’s right to such holiday entitlement would mean that an employer who does not allow a worker paid leave would not bear the consequences of their actions. The ECJ also made it clear that the ignorance of Sash Window as to the true employment status of Mr King was irrelevant to the judgment. The law in this area is clear that any right to paid leave should not be subject to any preconditions and any act or omission by an employer that deters a worker from taking their leave is not compatible with the law. In this case, the ECJ noted that a worker who is unsure whether they will be paid for a holiday could be dissuaded from taking it or, if taken, would not benefit fully from that leave as a period of relaxation and leisure.
The ECJ’s confirmation highlights the dangers that employers and businesses who engage people on a self-employed basis, but who are later classified as workers, now face. There could be significant financial liabilities for those businesses where a worker has been deterred from taking their holiday because the worker is able to roll over their holiday from previous years and receive payment for them on termination. It is anticipated that this development could lead to further claims being made and / or businesses conducting a review of self-employed engagements and status classifications.
Disclaimer: This bulletin is for general guidance purposes only and should not be used for any other purpose. This article is written by Brabners and reproduced with their permission. Brabners is a Limited Liability Partnership.