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Holiday Pay Update

The Court of Justice of the European Union (“CJEU”) in the case if King v The Sash Window Workshop has given a decision on holiday pay which could have serious and costly consequences for employers.

Background

The Claimant worked for The Sash Window Workshop Ltd (“the Company”) for 13 years as a self-employed “commission only salesman”. As it was believed that the Claimant was self-employed, if he took leave from work, it was unpaid.

When the Claimant’s engagement was terminated, he brought claims to the employment tribunal for holiday pay for his entire engagement with the Company on the basis that he was in fact a “worker” and not self-employed.

The Employment Tribunal agreed with the Claimant that he was a worker and that he was entitled to be paid in lieu of all accrued but untaken leave that had not been taken in previous years as well as to be paid for the periods when he had taken leave but this had been unpaid.

The Company appealed on the basis that the Working Time Regulations 1998 (“WTR”) state that a worker can only claim pay for a period of unpaid or underpaid holiday leave that they have taken, or bring a claim on the grounds that they have been prevented from taking the leave to which they are entitled. The WTR do not allow a worker to bring claims for leave that has been accrued in previous years but was not taken.

The Employment Appeal Tribunal, agreed with the Company’s argument that as the Claimant had not been prevented from taking the annual leave, his entitlement expired at the end of each annual leave year and this could not be carried forward in accordance with the WTR.

The case was then referred to the CJEU from the Court of Appeal in order to clarify whether the right to paid leave can carry over indefinitely in circumstances where a worker is prevented from taking holiday because it would be unpaid.

Decision

The CJEU held that the construction of the WTR suggests that a worker who is offered unpaid leave must take the leave and then try to claim pay for it. This, the CJEU said, is not compatible with the purpose of the Working Time Directive (“WTD”) which provides that member states must ensure that a worker is entitled to a minimum of paid annual leave. The CJEU went on to say that any act or omission of an employer that deters a worker from taking annual leave is contrary to the WTD and a worker who is not sure if he or she will be paid for taking leave is likely to be dissuaded. Therefore, workers are entitled to be paid for any accrued annual leave on termination where they have been discouraged from taking because it would be unpaid.

Comment

This decision is particularly significant for businesses in light of the recent “gig economy” cases where workers have been wrongly classified as self-employed contractors. The CJEU was clear that there was no limit on the amount of leave that could be carried over in these circumstances as “an employer who does not allow a worker to exercise his right to paid annual leave must bear the consequences”. In this case the Claimant’s claim is for approximately £27,000.

This decision also calls into question the effectiveness of the Deduction from Wages (Limitation) Regulations 2014 which limits unlawful deductions from wages to two years’ back pay. It also casts uncertainty on the holiday pay ruling in the Bear Scotland v Fulton case which held that a three-month gap between instances on unpaid or underpaid holiday would break a series of deductions.

The case will now be remitted to the Court of Appeal for decision.

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