“Self-employed” worker entitled to 13 years’ holiday pay

Speedread 

The European Court of Justice has ruled that a worker should receive holiday pay going back 13 years after his employer refused to give him paid holiday.

Facts

Untaken and unpaid annual holiday  

In Conley King v The Sash Window Workshop Ltd, Mr King worked as a salesman on the basis of a ‘self-employed commission only contract’ from 1999 until he retired in 2012. His contract didn’t include a clause covering paid annual holiday and when he took holiday, it was unpaid. 

After his employment ended, Mr King asked for payment for all of his holiday – both taken and untaken - for the 13 years he worked for the business. Sash Windows refused, saying that as he was self-employed he was not entitled to holiday pay. Mr King subsequently brought a claim in the Employment Tribunal (ET). 

ET decision 

The Tribunal concluded that that Mr King was a ‘worker’ within the meaning of the UK legislation, rather than a self-employed contractor. As a result it ordered Sash Windows to pay him for all the holiday. It said that the situation was similar to cases where a worker is unable to take leave because of sickness during the holiday year in which it accrues. Where this is the case, a worker is entitled to carry the holiday over and to be paid in lieu if he hasn’t taken it by the time his employment ends.  

Appeal to the Employment Appeal Tribunal (EAT) 

Sash Windows appealed to the EAT saying that Mr King wasn’t entitled to carry over untaken holiday and should therefore lose any untaken entitlement at the end of each holiday year. The EAT allowed the appeal, on the basis that Mr King hadn’t been prevented from taking his holiday and therefore his unused holiday entitlement should expire at the end of the holiday year. Mr King subsequently appealed to the Court of Appeal which referred the case to the European Court of Justice (ECJ). 

ECJ decision 

In considering the case the ECJ looked at a number of issues including:

• A worker faced with uncertainty over whether holiday will be paid may not get the full benefit of that holiday (in terms of relaxation and leisure) and may be deterred from taking holiday in the first place.
• The effect of the EAT’s judgment was that a worker must take holiday before being able to claim payment for it. This was incompatible with the Working Time Directive. It meant that Mr King wouldn’t be able to claim pay for his untaken holiday after leaving the business and this would deprive him of an effective remedy.   
• The need to balance the protection of workers and employers. The law permits a limit on carrying over untaken holiday where a worker is prevented from taking holiday due to sickness. This is to protect an employer’s interests and prevent organisational difficulties that may result from long periods of absence. In the UK, any untaken holiday has to be taken within 18 months of the end of the holiday year in question, otherwise it is lost. 

In coming to its decision the ECJ said that in Mr King’s case there was no need to protect the employer’s interests as Sash Windows had benefited from him not taking paid holiday whilst he worked for the business. It also said that an employer is responsible for knowing its obligations, including workers’ rights to paid annual holiday. It concluded that Mr King should be paid in lieu of all of his untaken holiday on termination.

Implications for employers and workers 

This case has significant consequences for employers, particularly for those using ‘gig economy’ workers where their employment status is judged to be that of a worker rather than self-employed. On termination, anyone with worker status who has not taken holiday because they were led to believe it would not be paid will be able to claim pay in lieu of untaken holiday for the whole period of the contract. Currently, this only applies to the basic four week statutory holiday entitlement under the Working Time Regulations 1998.  Even if an employer starts paying holiday pay going forward, they will remain liable for earlier breaches.

Where an individual has taken leave but not been paid for it (or has not been paid in full, for example because commission or overtime was not included), the unlawful deduction from wages regime will apply with its usual limitations. This includes a two year limit on claiming back pay. However, it is possible that these limitations will be challenged as they don’t provide an effective remedy for holiday pay breaches. 

As a result of this case all employers should look carefully at the employment status of all individuals working for their business to determine their rights, rather than simply rely on what the contract says.