King decision set to dethrone UK holiday pay legislation
As we fast approach the festive period the thought of some paid holidays fills many employees with great delight. However, for others in the workforce, particularly those deemed as self-employed and undertaking low paid work in the gig economy, taking time off may not be such a joyous occasion. This is because for many of them it means time off without pay which is simply not an affordable option.
Under the current Law, only employees and “workers” are entitled to paid annual leave of 5.6 weeks (which in the UK is more than the minimum requirement of 4 weeks under European Law). However there has been a recent deluge of cases on the issue of when those working in the gig economy are “workers” and therefore entitled to this paid annual leave and in relation to how to calculate holiday pay entitlements. The combination of these cases has created a great deal of uncertainty for employers as well as exposure to significant claims. You will find the links to our previous updates on these cases below.
There appeared to be some clarity in the legal position on holiday pay entitlements as a result of the introduction of the Deduction of Wages (Limitation) Regulations 2014 (which limit backdated holiday pay claims to 2 years) and the EAT decision in Bear Scotland Limited & others v Fulton & others (which confirmed that holiday pay must be based on normal remuneration). However it is likely that the current position is subject to challenge and further uncertainty in light of the recent European Court of Justice decision in the case of King v The Sash Windows Workshop Limited.
In this case Mr King was engaged, purportedly on a self-employed basis, with The Sash Windows Workshop Limited (‘The Company’) for a period of 13 years. During his engagement with the Company Mr King worked on a commission-only basis and received no pay when he was on holiday or off sick. In 2008 the Company offered him an employment contract but he elected to remain on his current terms.
Mr King was dismissed on his 65th birthday and raised an Employment Tribunal claim. Mr King claimed that he was a “worker” and as such should have received paid holidays. He claimed over 24 weeks’ pay in respect of leave that was untaken over a period of 13 years. The Employment Tribunal found in his favour and he was awarded £9,000 as pay in lieu of untaken leave.
The Company appealed the decision. At the Employment Appeal Tribunal the Company successfully argued that holidays not taken within the holiday year are lost and therefore they were not liable for further payments to Mr King. This is consistent with the position under the Working Time Regulations “WTR” which implement the European Law.
Mr King appealed to the Court of Appeal. The Court of Appeal sought clarification from the European Court of Justice (‘ECJ’) on a number of points including whether the right to carry forward holidays applied indefinitely.
The European Court of Justice held that an “employer” who fails to grant paid holiday should not be entitled to place limits on how much holiday can be carried over from one year to the next. As such current UK Law appears to be incompatible with European Law. The ECJ held that the important factor in this case was that the “employer” had denied Mr King the right to paid holidays therefore, under European Law, he was entitled to carry over and accumulate such untaken leave until the end of the employment relationship. The case will now return to the Court of Appeal but it is expected that they will follow the ECJ’s decision and interpret the WTR in a way which is consistent with European Law.
The ECJ’s ruling is likely to have far reaching implications for employers whose self-employed contractors may in fact be properly characterised as “workers”, particularly those in the gig economy and currently involved in litigation regarding employment status including Uber and Plimlico Plumbers. The ECJ commented that “the fact that Sash Windows Workshop’s considered, wrongly, that Mr King was not entitled to paid annual leave is irrelevant. Indeed it is for the employer to seek all information regarding his obligations in that regard.” This is an important reminder for all organisations, particularly where they engage staff on a self-employed or contractor basis, to review the position in light of the latest case Law on worker status.
In the event that the Court of Appeal follow the ECJ judgement, organisations may be exposed to claims going back 20 years to when the WTR came into force. Given the potential for organisations to be liable for thousands of pounds in backdated holiday pay, legal advice should be sought as soon as possible to ensure that current processes are legally compliant in order to mitigate potential risk and financial liability.