Partner Sue Dowling, in our Employment Law team, discusses the recent decision regarding backdating unpaid holiday claims.
The decision handed down by the Court of Justice for the European Union (“ECJ”) in King v The Sash Window Workshop Ltd and another may have significant consequences for employers who engage individuals on a ‘self-employed’ or independent contractor basis, and could leave organisations liable for thousands of pounds worth in backdated unpaid holiday claims.
This landmark decision provides that workers who have been wrongly classified as self-employed contractors may claim back pay in respect of unpaid annual leave going back years to the point when their ‘worker’ status can be established.
Facts
The case concerned a self-employed commission-only salesman, Mr King, who had worked for the Sash Window Workshop Ltd (“SWW”) for 13 years until his retirement in 2012. He received no salary, and had no contractual right to paid annual leave. After reaching the age of 65 in October 2012, Mr King was dismissed by SWW and subsequently brought Employment Tribunal claims for age discrimination and unpaid accrued holiday pay for the whole period of his engagement.
The discrimination claim was successful, and in respect of the holiday pay claim, the Employment Tribunal held that Mr King was a ‘worker’ within the meaning of the Working Time Regulations 1998 (“WTR”) and was entitled to be paid for all his leave accrued, but untaken, spanning back to 1999, in order to account for his entire period of employment with SWW.
Dissatisfied with the tribunal’s decision, SWW appealed and argued that Mr King was not entitled to carry over periods of untaken annual leave into a new holiday year pursuant to Regulation 13(9) of the WTR 1998. The Employment Appeal Tribunal (“EAT”) upheld the appeal and remitted the claim to the original tribunal on the ground that Mr King had not been prevented by “reasons beyond his control” from taking his leave.
Mr King then appealed to the Court of Appeal, who referred to the ECJ for a preliminary ruling.
The ECJ decision
In the opinion of the Advocate General, SWW had benefitted from Mr King not taking paid annual leave and should therefore bear the financial consequences. The ECJ agreed with the Advocate General’s submission that SWW had not suffered organisational difficulties, unlike in cases involving sickness leave where a worker has been prevented from taking paid holiday, and added that any act or omission by employers that prevent workers from exercising their rights to paid holiday will be contrary to the purpose of the WTR 1998.
The ECJ held that workers should be entitled to be paid, on termination, for any periods of annual leave that had been accrued, but untaken, during their employment period where the worker has been discouraged from taking it because it would have been unpaid. The court stated that a limit on the amount of carry over should not be imposed, as to do so would amount to the validation of the employer’s unlawful conduct of preventing a worker from exercising their right to paid holiday.
On this basis, the ECJ determined that Mr King’s worker status entitled him to be compensated for untaken holiday dating back to the beginning of his employment in 1999.
Comment
This decision marks a notable departure from Regulation 13(9) of the WTR 1998 which provides that untaken statutory holiday expires at the end of each holiday year, and could leave employers facing significant historic claims from individuals who seek to argue that they should enjoy ‘worker’ status, as opposed to being self-employed, particularly where appointments have been long term.
Employers should be mindful of any current workers who are categorised as self-employed within its organisation and perhaps consider taking advice on whether such individuals might in reality be classed at workers, particularly if they have long service. Workers who are prevented from taking paid holiday will be entitled to pay in lieu of all the paid annual leave that has not been taken up until that date. The ECJ added that it will be irrelevant if an employer wrongly classifies an individual as self-employed and restricts their entitlement to paid holiday. This places an additional responsibility on employers to consider the make up of their workforce and seeks to ensure that workers are not prevented from exercising their right to paid annual leave – without financial penalties for the employer.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
