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And the Holiday Pay Saga Continues...

14th December 2017

By Sophie Banks, Solicitor in the Employment team

In the recent case of King v The Sash Window Workshop Ltd and another, the European Court of Justice (ECJ) held that a worker who did not take annual leave because his employer refused to pay for the leave was entitled to carry over his entitlement to four weeks’ paid holiday each year and was then entitled to be paid this accumulated holiday pay on termination.

Mr King had worked for The Sash Window Workshop (SWW) for 13 years as a self-employed salesman. He was engaged on a commission-only basis and received no salary, holiday pay or sick pay. When he retired in October 2012, Mr King sought to recover payment for his annual leave entitlement for the entire duration of his engagement (equivalent to 24.15 weeks), citing that he had either been too busy to take the holiday, or had not taken it because it was unpaid. SWW disputed his claim on the grounds that Mr King was a self-employed contractor, and was therefore not entitled to holiday pay. The Employment Tribual held that Mr King was a worker, and was entitled to holiday pay (i) taken but not paid and (ii) accrued but untaken for the entire duration of his engagement. SWW appealed the second point, and the EAT agreed that Mr King should not receive pay in respect of leave accrued but untaken in previous years.

Mr King appealed to the Court of Appeal, who in turn referred the matter to the ECJ. The ECJ found that Mr King was entitled to carry-over four weeks’ paid annual leave (provided under the Working Time Directive) each year for the entire 13-year engagement. The reasoning behind this decision was that a worker that is discouraged from taking annual leave (because the employer refuses to pay for it) is prevented from exercising their right to paid leave. The leave therefore carries over until the worker gets the opportunity to exercise that right, which in this case was the termination of Mr King’s engagement on his retirement.

It was not seen as fair to expect the worker to take the holiday and then sue his employer for the unpaid holiday afterwards. It was also decided that there should be no limit on the amount of leave that could be carried over in this case because “an employer that does not allow workers to take paid leave must bear the consequences.” This case will now return to the Court of Appeal which will have to decide whether our Working Time Regulations can be interpreted consistently with the ECJ’s ruling.

This decision could have significant implications for all those that engage workers that have been misclassified as self-employed (including the renowned “gig economy” workers), as employers could be liable to pay out huge sums in respect of holiday that workers have been discouraged from taking (as it was unpaid) when the worker’s engagement ends.

Although this case does not cover workers who have taken leave, but have not been paid for it, the limit of just two years’ back pay (under the Deduction from Wages (Limitation) Regulations 2014) for this type of claim may now be seen as incompatible with EU law, and workers could try to claim holiday pay in respect of periods before the two-year limitation period. Further, the principle established in the Bear Scotland case that a three-month gap between instances of unpaid holiday pay breaks a series of deductions is also now open to challenge. These issues will no doubt be considered in an Employment Tribunal near you soon, so watch this space!

The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2017.

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