7th December 2017
In a decision with huge ramifications for many British businesses, the European Court of Justice (CJEU) has held that anyone with ‘worker’ status must be able to carry over paid annual leave if they have not had the opportunity to take it or have not taken it because they have been regarded as ‘self-employed’ (and therefore didn’t think they could get paid for holidays).
Mr King was engaged by The Sash Window Workshop as a self-employed contractor (paid commission only) from 1999 to 2012. In 2008, his employer offered him an employment contract but he declined this and opted to remain self-employed. Following his departure in 2012, he brought a number of Employment Tribunal claims against the company including for unpaid holiday pay dating back to his start in 1999. The Tribunal held that he was a ‘worker’ for the purposes of the Working Time Regulations 1998 and was therefore entitled to receive paid holiday. On appeal, the Employment Appeal Tribunal (EAT) found there was no evidence that Mr King had ever asked for or attempted to take any annual leave and he therefore had no entitlement to it.
The Court of Appeal referred the case to the CJEU. The CJEU held that if a worker is prevented from taking paid holiday because the company engaging them won’t grant them paid holiday, then they are being prevented from exercising their EU rights.
The CJEU also held that an employer who fails to grant paid holiday to workers should not be entitled to the benefits of the normal time limits on how much leave can be carried over from one year to another. This means that back payment claims for unpaid holiday can potentially go back to 1996, when the original Working Time Directive came into force (the Working Time Regulations 1998 were implemented two years later). The CJEU was clear that EU law requires that a worker must know that they are going to be paid before they take leave. This means there is no obligation on a worker to first attempt to take leave before making a claim for non-payment of it.
This decision applies to the 4 weeks’ holiday leave granted by the Working Time Directive and not the full 5.6 weeks’ leave granted by the Working Time Regulations. For a worker who has been employed since 1996 this could amount to 80 weeks’ holiday pay (20 years by 4 weeks = 80 weeks’ holiday pay).
This decision has huge potential implications for businesses who engage ‘self-employed’ contractors and where there is a risk that such individuals might be ‘workers’ and bring substantial holiday pay claims dating back as far as 1996. The Court made it clear that Sash Window Workshop’s ignorance of Mr King’s employment status was no defence for not paying his holiday. It said that it was for the employer to seek all information regarding its obligations.
The CJEU decision throws considerable doubt over whether the EAT’s decision in Bear Scotland v Fulton (which held that Employment Tribunals cannot award backpay for unpaid holiday leave beyond any 3 month break in unpaid EU holiday leave) is still valid law.
The Deduction from Wages (Limitation) Regulations 2014 place a two-year backstop on claims for holiday pay but, where the entitlement to pay in lieu of unpaid holiday pay arises on termination of employment, the two-year back pay limit will not apply.
The CJEU decision relates to the UK’s obligations under the EU-derived Working Time Directive. The UK courts will still have to observe these obligations both in the run up to Brexit and afterwards. The Government may seek to amend the law post-Brexit, but this is not currently on the horizon.
If you have any questions about this article please contact David Smedley or Andrew Rayment.