Court of appeal overturns holiday pay ruling

In the recent case of Pimlico Plumbers v Smith Gary Smith had already succeeded at the Supreme Court which decided that he was a worker and not, as claimed by Pimlico Plumbers, a self-employed contractor.

With his worker status confirmed, Mr Smith’s claimed around £74,000 of holiday pay accrued over the six years that he worked for Pimlico Plumbers.

The Court of Appeal decided that Mr Smith could recover compensation for up to four weeks of the annual leave he had taken every year throughout his employment, but which had been unpaid.

This decision follows a long-running claim brought by Mr Smith, a plumbing and heating engineer, against his former employer, Pimlico Plumbers.

Mr Smith worked for Pimlico Plumbers between August 2005 and May 2011 and during this period Pimlico Plumbers maintained that he was an independent contractor and so was not entitled to paid annual leave. Whilst working for the business Mr Smith took periods of unpaid annual leave.

In 2018, the Supreme Court held that Mr Smith was a worker for the purposes of the Working Time Regulations 1998 ‘WTR’.

He claimed this based on the principles established by the Court of Justice of the European Union in the King v Sash Windows which meant that a worker who had not taken paid leave because their employer had wrongly treated them as self-employed, can carry over and accumulate up to four weeks of paid leave each year until their employment is terminated.

Once Mr Smith’s workers status was confirmed, Pimlico Plumbers accepted that he was entitled to holiday pay for the leave in his final year of employment, but said that they would not pay it because his claim was out of time.

Decision of the Employment Tribunal and Employment Appeal Tribunal 

An Employment Tribunal dismissed Mr Smith’s claim on the basis that he had brought it out of time. They held that the key distinction was that Mr Smith had taken annual leave but in the King v Sash Windows case it concerned an individual who had been denied the opportunity to take any annual leave because they knew it would be unpaid.

Mr Smith appealed this decision and the Employment Appeal Tribunal dismissed his appeal on the basis that the Employment Tribunal had not erred in its interpretation of the King v Sash Windows case. Mr Smith appealed to the Court of Appeal.

Decision of the Court of Appeal 

The Court of Appeal allowed Mr Smith’s appeal and held that he could recover compensation for all the unpaid holiday he had taken throughout his entire employment with Pimlico Plumbers.

The Court held that workers have a single legal right to paid annual leave and that a worker cannot be said to exercising such right in a situation where they have taken unpaid annual leave when the employer has disputed the right and not agreed to pay for such leave.

The Court of Appeal made it clear that employers have the burden of showing they have given workers opportunity to take paid annual leave and encouraged them to do so. Should an employer fail to meet that burden then the right to paid leave does not lapse but carries over and accumulates until the worker’s employment terminates.

The Court of Appeal also considered a further aspect in obiter relating to the principle established in Bear Scotland Limited v Fulton which was that unlawful deductions from wages for unpaid holiday pay cannot be claimed as the last in the a series of deductions where more than three months has elapsed between the deductions.

This principle meant that many claims are often out of time. The Court of Appeal expressed the view that the EAT in that case was wrong to hold that such a gap of three months or more between deductions prevented the forming of a ‘series’ for the purposes of a wages claim.

Although only in passing, the Court of Appeal indicated that their preferred view was the decision in Chief Constable of Northern Ireland Police v Agnew which was that the three- month gap did not breach a series of under-payments of wages.

Implications for employers

This decision only applies to the four weeks leave derived from EU law under the Working Time Directions (WTD), not the additional 1.6 weeks of leave under the UK’s WTR.

The two-year backstop on claims for unlawful deductions from wages (introduced in 2015) does not apply to claim which are brought under the WTR.

Businesses who engage individuals as an independent contractors basis will need to tread carefully if there is any doubt surrounding their employment status. Businesses may well have allowed such individuals to take unpaid time off for holiday however if those individuals are later held to be workers or employees of the business then they could be faced with many years’ worth of holiday pay claims.

Any worker who has not received paid leave because they have wrongly been considered as self-employed and who brings a claim within three months of their termination date will be able to recover compensation going back to the start of their employment. The financial impact of this for some employers could be significant.

Issues surrounding holiday pay can be complex and have profound consequences. If you require any assistance with these issues, then please do not hesitate to contact our Employment team.