The Court of Appeal has recently ruled that a worker who had taken unpaid leave, because their “employer” did not recognise their status as a worker, was entitled to bring a claim for all unpaid annual leave accrued during the whole engagement, including the taken (unpaid) leave as well as untaken leave.
Facts
Gary Smith worked for Pimlico Plumbers Limited between 2005 and 2011. In 2011, Mr Smith brought claims at the Employment Tribunal (ET) arguing that he was a worker and seeking holiday pay. Pimlico Plumbers argued that he was a self-employed contractor who had no entitlement to paid annual leave. The case went all the way to the Supreme Court which ruled that he was a worker and, therefore, entitled to paid annual leave. Mr Smith then raised a new claim to recover the payments for annual leave he had not received during the period from 2005 to 2011. That claim was rejected by the ET and Employment Appeal Tribunal because it had not been brought within three months of payment being refused.
Court of Appeal decision
The Court of Appeal has held that the right to paid leave should not be subject to any pre-conditions. There is a single right to paid leave, rather than a right to take leave and a separate right to pay for that leave. This means that taking unpaid leave does not discharge an employer’s obligation to pay workers for it. The Court of Appeal (applying the principles from the European Court of Justice’s decision in King v. Sash Window Workshop) held that workers will only lose the right to payment of annual leave from one year to the next if an employer can show that they:
- gave 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 Court of Appeal’s decision applies only to the statutory minimum leave to which workers are entitled under European law, which is four weeks (20 days for someone working full-time), so-called “Euro leave”. It does not apply to the additional 1.6 weeks (eight days for someone working full-time) which is established under UK law, separately from EU law. A worker wishing to bring a claim for payment for this additional leave (assuming they had taken it) would have to bring a claim for unlawful deduction from wages. This would be subject to the two-year backstop on such claims that the UK government introduced in 2015.
The judgment contained another blow to employers grappling with historic holiday pay issues. The Court of Appeal gave a “strong”, albeit “provisional”, view that the decision in a previous case that a gap of more than three months would break a series of deductions was wrong.
Impact
This judgment could prove very costly to employers who have historically used a large number of consultants who, particularly in light of last year’s IR35 reforms, may now see (financial) benefits in arguing that they have in fact been employees, or at least workers, all along. The potential bill for the Euro leave entitlement alone over a number of years will be steep.
Employers who make extensive use of independent contractors should carry out an audit to assess the potential extent of the liability to which this decision gives rise and ensure they are comfortable with decisions they have taken on the employment/worker status of those contractors. We expect Pimlico Plumbers will appeal to the Supreme Court, so it is unlikely we have heard the last on this issue.
In the meantime, where worker status is not in issue, it is also important to ensure that contracts and policies are clear that workers have the opportunity to take paid leave and that, if they fail to take the leave, it will be lost at the end of the leave year. Workers must also have a genuine opportunity to take leave if they wish to do so.
