The European Court of Justice (ECJ) issued a landmark decision in C King v The Sash Window Company Ltd in relation to holiday pay.
On termination of the engagement, the worker has the right to payment in lieu of all leave that remains outstanding. People who were engaged as self-employed, but a court or Tribunal later deems to have been “workers”, could have very valuable claims for the employer’s failure to provide them with paid holidays.
The worker worked for the organisation as a salesman for 13 years. He was considered to be self-employed and, on that basis, was not entitled to paid holiday. Based on that belief, he took around three weeks of unpaid holiday per year.
When he reached the age of 65, the arrangement was terminated. He then made various claims, one of which was for the payment of holiday pay. He argued that, in fact, he was a worker and ought to have been given paid holiday.
He argued that his compensation for unpaid holiday should also include a payment in lieu of the annual leave he failed to take during his 13 year engagement. His position was that he was deterred from taking his full entitlement throughout his contract because it was unpaid.
In essence, there were two questions to be answered.
Firstly, is a worker who fails to take leave (knowing that it would be unpaid) entitled to any compensation?
The Advocate General concluded that employers must provide adequate facilities to workers to enable them to exercise their holiday entitlement. For example, contracts should specify the entitlement to paid annual leave. If the employer did not provide the adequate facilities to enable workers to take paid holiday, then workers could seek compensation; compensation is payable even if the workers didn’t suffer any financial loss because they didn’t, in fact, take leave.
The second question was: can leave entitlement be carried over from one leave year to the next (where a worker has chosen not to take it because it is unpaid)?
The Advocate General of the ECJ gave the opinion that where an employer has not provided a worker with paid leave, the right to paid leave carries over from one leave year to the next until that worker has the opportunity to exercise it.
Where the engagement is ultimately terminated, a payment in lieu of the annual leave accrued during the engagement must be paid. This is the case even if that is several years’ worth of holiday pay and even if the worker made no attempt to take the paid leave.
The ECJ went further than the Advocate General’s opinion in finding for the worker. It held that in cases such as this there is no time limit for claiming payment in lieu of holidays as the worker has never been permitted to take the leave.
Under UK law there are limitations on holiday pay claims. Where there has been an underpayment, only two years’ worth of back payments can be sought (unless the claim was lodged before July 2015). Also claims must be brought within three months from the last underpayment. However, this case was about a failure to allow any paid leave rather than a claim for underpaid holiday pay and the considerations are different. The opinion does not address whether applying these limitations would infringe EU law.
Despite Brexit, EU law in this area continues to apply and will do for some time and decisions of the ECJ will continue to be relevant.
Employers should ensure that those who they treat as self-employed are generally self-employed, failing which there could be costly surprise claims several years down the line.