King v The Sash Window Workshop Ltd
The European Court of Justice (CJEU) has consistently found that the right to paid annual leave is a right that cannot be interpreted restrictively or diminished by national provisions.
Last months CJEU decision in this case, follows that approach, but taken at face value could lead to a stampede of claims from “workers” who have been potentially mis-categorised as self-employed.
The question it had to answer was “Does a worker who does not take paid annual holiday, because the employer refuses to pay, carry over his entitlement to paid holiday or is it lost at the end of each holiday year?” And guess what, they held it does carry over!
The incentive to bring such claims is now greater as this decision opens the door to compensation that may cover many years of unpaid leave and therefore might be very significant in liability terms.
Mr King had not been paid for leave in the 13 years he was engaged by Sash Windows Workshop Ltd as an “independent contractor” and had, in some years, not taken leave as a result.
An employment tribunal had found that he was actually a “worker” and thus entitled to 5.6 weeks' paid annual leave and the outstanding issue related to how much holiday pay he was entitled to. The ECJ commented that the employer had benefitted from him not taking his leave and that “an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences”.
The employer argued that the Working Time Regulations 1998 provide that if paid holiday is not taken in a leave year, then it is lost.
The CJEU, in an important judgment, disagreed. It held that if a worker is prevented from taking their paid holiday because the 'employer' won't grant the paid holiday, they are being prevented from exercising EU rights. As such, they cannot be stopped from bringing a claim just because a new holiday year starts, and insofar as the UK Regulations say that the worker loses the right, they are incompatible with EU law and must be disregarded.
More fundamentally, the CJEU held that an employer who fails to grant paid holiday to workers should not be entitled to the benefits of the normal limits on how much can be carried over (as set out in Plumb v Duncan Print). In fact, the backpay claim can go all the way back to 1996, when the original Working Time Directive came into force (the Working Time Regulations 1998 were implemented two years late).
The practical ramifications of this are that employers whose 'self-employed' contractors turn out to be 'workers' (e.g. the likes of Uber, Pimlico Plumbers, CitySprint etc) may find themselves facing very substantial holiday pay bills, dating back 20 years. Since this ruling only applies to 4 weeks' EU holiday (rather than all 5.6 weeks of UK holiday), the bill could be 20 years x 4 weeks = 80 weeks' pay per worker!
The case will need to return to the Court of Appeal to implement the CJEU judgement, but the implications could be financially damaging for many businesses and even ruinous for some, if they have been using self-employed people for years.
The real problem is the lack of clarity over the status of workers and the genuinely self-employed. Many businesses who have been trying to navigate these uncertain definitions could find themselves in a difficult position through no fault of their own.
There must also be very considerable doubt over whether the EAT's decision in Bear Scotland v Fulton, which held that tribunals cannot award backpay for unpaid holiday leave beyond any 3 month break in unpaid EU holiday leave, can survive this CJEU decision.
If you remember, one of the recommendations from the Work and Pensions and BEIS Committees (following the Taylor Review earlier this year) is to provide greater clarity on the definitions of “employee” and “worker”, as well as introducing a rebuttable presumption of worker status where there is a dispute over whether the individual is self-employed or a worker. Whilst legislative change will still be some way off, the case law direction is in favour of the worker and businesses would therefore be wise to ensure they appropriately plan for this by examining the way they employ or engage their staff and evaluate potential liability risk and provide for it accordingly.