Worker who took unpaid leave due to mislabelled employment status wins holiday pay claim
Article 7(1) of the Working Time Directive gives workers the right to four weeks’ paid annual leave (topped up to 5.6 weeks in the UK).
But what happens if a company disputes this right – and refuses to pay for leave taken – because, for example, they believe the individual to be self-employed rather than a worker?
In these circumstances, can an individual who successfully argues that they are a worker rather than self-employed claim that this right has been breached?
And if so, can they claim backdated holiday pay for the whole period they were a worker, due to the employer failing to recognise them as having worker status and therefore denying them the right to paid annual leave during employment?
In the long-running legal battle of Smith v Pimlico Plumbers, the Court of Appeal has confirmed that yes, they can.
Smith v Pimlico Plumbers
Mr Smith worked as a plumbing and heating engineer for Pimlico Plumbers between 2005 and 2011. His contract stated that he was “an independent contractor of the Company”; however, in what was a landmark decision for gig economy workers, he was able to successfully convince an Employment Tribunal, and later the Supreme Court, that he was in fact a worker in all but name.
After establishing his worker status, Mr Smith sought repayment of the four weeks’ leave for each year he was working for Pimlico Plumbers. He argued that the European Court of Justice decision in King v Sash Windows applied to his situation, namely that if a worker has not been provided with the right to paid annual leave, they will be entitled to claim that they have been prevented from exercising this right. If this is the case, the right carries over until the worker has the opportunity to exercise it.
The Employment Appeal Tribunal (EAT) rejected Mr Smith’s assertion that the King decision was relevant to his case, mainly because Mr Smith’s case related only to leave he had actually taken but not been paid for, rather than leave he had been deterred from taking at all.
The Court of Appeal disagreed with the EAT. It found that the principles in King apply to both leave that has been taken but not paid and leave that was not taken at all, in cases where the worker has been denied the right to paid annual leave under Article 7 and Regulation 13 of the Working Time Regulations (the four weeks’ leave provided by EU law under the Working Time Directive). The right afforded under Article 7 is for paid annual leave, not just annual leave. Moreover, damages for these types of claims will not be limited to the two-year limit under the Deduction from Wages (Limitation) Regulations 2014.
As such, the appeal judges ruled that Mr Smith was entitled to backdated holiday pay, said to amount to over £74,000 accrued over his six years’ service, although the next step, subject to this being appealed to the Supreme Court, will be for there to be an assessment of damages.
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Potentially huge implications
This is a significant decision on the issue of holiday pay, highlighting the risk employers take by failing to provide the right to paid leave.
It serves as an important reminder that in cases like these (where the right to paid leave is disputed and the employer refuses to remunerate it), workers only lose the right to take leave at the end of the leave year if the employer can show that they have:
- Specifically and transparently given the worker the opportunity to take paid annual leave
- Encouraged the worker to take paid annual leave; and
- Informed the worker that the right would be lost at the end of the leave year.
The judgment confirms that if an employer cannot demonstrate that they have taken these steps, the right to paid leave does not lapse; instead, it carries over and accumulates until the contract terminates, at which point the worker will be entitled to a payment in respect of the untaken leave.
This decision will be particularly significant to employers who engage individuals who are treated and labelled as self-employed but who may actually be workers or employees, and paves the way for other gig workers to chase companies for unpaid holiday pay.
One would hope the outcome of this case may be less relevant to organisations who already recognise staff as workers or employees, as unless they are particularly unscrupulous, employers should already be ensuring these individuals get at least four weeks’ annual leave.
However, as highlighted in the judgment, it would be prudent for all organisations to actively encourage employees/workers to take leave in order to avoid ending up in similar scenarios. With some companies fast approaching a new leave year, employers should now make sure that employees/workers:
- Know what their entitlement to leave is and when they can take it;
- Take any unused leave in good time before the end of the leave year; and
- Are reminded that, if they don’t, they will lose it.
Annual leave query?
Calculating employees’ holiday entitlement and pay can get complicated, particularly given the new case law that has emerged in the past few years.
If you require practical support getting to grips with the rules, our highly-qualified team of Employment Law and HR specialists can explain the correct approach based on your specific categories of worker so that you can avoid the risk of claims.
If you think you might be affected by this decision in this case, or have any other annual leave query, get in touch with our team on 0345 226 8393 or request your free consultation using the button below.