Workers and entitlement to paid holiday.

Employment Solicitor, Sepie Nourouzi takes a look at the long running holiday pay case with Pimlico Plumbers which took a further turn in a recent Court of Appeal decision about workers and their entitlement to paid holiday.

Mr Smith worked for Pimlico Plumbers (PP) as an engineer from August 2005 until 3 May 2011. PP maintained that Mr Smith was not a ‘worker’ and so had no entitlement to paid annual leave as he was considered a self-employed contractor. Mr Smith disputed this and claimed that he routinely took unpaid holiday leave at Christmas, during the summer holidays, and on bank holidays. The last occasion, before his contract terminated, had been  in December and January 2011. On 3 May 2011, Mr Smith was suspended from work  and required him to return equipment and the company work vehicle, which Mr Smith regarded as a fundamental breach of his contract.

Mr Smith brought his claims against PP and in 2018, the Supreme Court ruled that he was a worker.   The Supreme Court sent the case back to the Employment Tribunal to decide on his holiday pay  claim.  It is this aspect of the claim that has made its way back to the Court of Appeal.

In dealing with the appeal in the holiday pay claim by Mr Smith, the Court of Appeal reviewed the earlier decision in the case of King v Sash Window Workshop (King) and found that a worker is allowed to carry over a right to payment for annual leave from one leave year to the next, even if the worker has been permitted to take annual leave, but it is unpaid.   Although the worker in King claimed compensation for leave which he did not take, the decision should be read as extending to workers who have taken leave but have not been paid for it.

The European Court of Justice (ECJ) in King had emphasised that there was a single, composite right to ‘paid annual leave’ under the Working Time Directive which must not be made subject to any preconditions.  Further, the right is to receive payment when the leave is taken and any practice that might deter a worker from taking their annual leave is incompatible with the right to paid annual leave which is to ensure the necessary rest and relaxation (without worry and uncertainty). The employer must bear the consequences of any refusal to recognise or make payment for holiday, is under a duty to establish the correct position and cannot be allowed to benefit from not paying for annual leave to the detriment of the worker’s health.

Additionally, the provisional view of the Court of Appeal in the Smith case was that the Employment Appeal Tribunal had been wrong in a previous case when it had found that a gap of more than three months between holiday pay deductions prevented the deductions forming part of a ‘series’ of deductions for the purpose of a wages claim. The effect of this had been to limit the value of claims that employees could bring for unpaid holiday if there had been a gap of three months between deductions being made as this acted as cut off point for claiming historical unpaid holiday pay.  The consequence of this is  that provided that a claim for unpaid holiday pay is made within a period of three months beginning with the date of termination of employment, it will be in time.   

A worker or employee, will only lose the right to paid annual leave when the employer can demonstrate that it:

1.    Gave the worker the opportunity to take paid annual leave;

2.    Encouraged the worker to take paid annual leave; and

3.    Informed the worker that the right would be lost at the end of the leave year, if not used.

This decision constitutes a significant change in the long line of holiday pay claims.   It is advisable for employers to now confirm these points in writing with a worker or employee who may want to take unpaid leave for any reason.  If an employer cannot demonstrate that it has taken these steps, the right does not end but carries over and accumulates until termination of the contract, at which point the worker is entitled to a payment in respect of all accrued untaken leave. Mr Smith was therefore entitled to payment for all of the unpaid leave he took and the failure to make payment was a breach of his right to paid annual leave.  

Worker will be entitled to paid annual leave when the services are provided personally.  This case will have a particular impact on employers engaging “self-employed contractors”, whether in the gig economy or more widely. There have been a number of cases where a self-employed status has been successfully challenged, where individuals in the gig economy were classed as workers and are now entitled to paid holiday.  The outcome of this case means that these workers can potentially claim holiday pay dating back to when they started working with a company which in some cases, could be several years.

If you are working with self-employed contractors or workers, you should review your holiday entitlements.   Our employment team are able to assist with any review of holiday policies and to advise on any changes your organisation may need to implement or actions to take to mitigate the risk of holiday pay claims.

To speak to a member of our employment team in complete confidence, please contact 01689 887840.

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Although correct at the time of publication, the contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.