Can workers carry over holiday that they have been prevented from taking when they are mistakenly classed as self-employed?
This is a question asked of the European Court of Justice by the Court of Appeal in a case brought by Peninsula and supported by the UK Government. The ECJ is considering the case of King v The Sash Window Workshop Ltd and anor.
King was engaged as a salesman, receiving only commission, for 13 years. During his engagement he took different amounts of holiday each year but this was unpaid because the employer, and King himself, believed him to be self-employed and, therefore, not entitled to holiday pay. In 2008 King was offered a contract of employment but he turned this down. King’s contract was terminated in 2012 and he claimed compensation for holiday pay and pay in lieu of accrued but untaken annual leave for the length of his engagement.
At the employment tribunal, it was decided that both parties had genuinely mistaken the status of King. He was a worker and had been entitled to payment for annual leave. He was awarded pay for holiday accrued but untaken at the date of termination for the final leave year, pay for leave taken in previous years of his engagement as a series of unlawful deductions from wages and pay in lieu of accrued but untaken leave during the whole of his engagement.
The employer challenged the award of compensation for accrued but untaken leave on the grounds that the employee had failed to exercise his right to take the leave during the leave years so he was not entitled to carry over the leave. It is already established principle that workers who cannot take holiday leave because they are sick can carry over the first four weeks of their holiday leave entitlement for a maximum of 18 months after the end of the leave year.
In this case, the Employment Appeal Tribunal (EAT) decided that a worker can claim that holiday is carried over in circumstances where they are unable to take their holiday for reasons beyond their control, not just in cases of sickness. Whether King was unable to take holiday for a reason outside his control was sent back to the ET.
The Court of Appeal made reference to the ECJ to answer key issues raised in the case.
Questions for the ECJ
Under the Working Time Regulations, does an individual have to take unpaid leave before being able to prove they are entitled to pay for this?
Where the worker doesn’t take leave they are entitled to, can the leave be carried over when the worker is prevented from exercising their right?
If the leave does carry over, is this indefinite or for a limited period as in sickness cases?
Importance of the case
The issues raised in this case concern a previously untested area and clarity is needed because the final decision will have a significant impact on employers. If the ECJ decides in the affirmative, that workers can carry over leave where they are unable to take paid leave for reasons beyond the worker’s control other than sickness, this could leave employers facing a large administrative, absence management and financial burden. It would lead to a further grey period where employers are unsure of what constitutes a reason beyond the worker’s control as, in this case, the reason was a genuine mistake regarding status made by both parties. This could open the flood gates to a number of claims to gain further guidance on what these other reasons are and how wide the scope of this will be.
The outcome of this case will evidently be significant where the status of the individual is disputed. Not so much where the worker has been intentionally wrongly classed for the benefit of the employer, but where the status is genuinely thought of as self-employed during their engagement and then a dispute leads to the individual seeking a judgment on their status as a worker. A finding by a tribunal that the person is a worker a number of years down the line could leave an employer facing a significant compensation claim for holiday pay, even if subject to a carryover limit. The number of status cases and ‘gig economy’ claims currently working their way through the system show how significant this issue could be.
The decision of the Court is likely to be handed down whilst the UK is still a member of the European Union and will, therefore, be binding on UK courts and tribunals. In addition, there are currently calls from a group of MPs who wish to continue to be bound by decisions of the ECJ after the exit has occurred. Once the UK leaves the EU, the government has pledged that worker rights will be preserved through the Great Repeal Bill. The Working Time Regulations are mooted as one area that may be amended in the future but, for now, the importance of the need for clarity in this area is obvious.
“The European court today explored the issues relating to workers’ entitlements toholiday pay and payments on termination under EU law. The case raises specific issues faced by many UK workers who are incorrectly treated as self-employed. The question being whether the burden should fall to the employer to assess worker status properly, or face possible consequences upon termination, or whether it is for the employee to enforce their rights in a court or tribunal at the time, at the risk of job security.”
James Williams, barrister, Henderson Chambers added:
“As expected, the submissions of the European Commission generally agreed with those advanced by Mr King whilst the UK Government broadly agreed with the submissions advanced by the employer. One important point made by the Commission was that as the Directive is a health and safety measure, the burden of ensuring compliance should fall on the employer. It was emphasised for Mr King that the availability of a payment in lieu on termination is necessary to ensure the effectiveness of the directive – otherwise employers would be incentivised to stop their staff from taking paid leave.”
“Many businesses don’t have an annual leave calculator tool like Activ Absence. For businesses in that position calculating staff holiday is enough of a challenge already. To try and remember who worked what shifts historically and therefore who is entitled to what holiday pay based on overtime, time off in lieu and bonuses is going to be a mammoth task for anyone who would now be regarded as an employee. We await the full outcome in June, but employers could face a big bill and an administration nightmare.”