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21 April 2021
The Employment Appeal Tribunal has ruled that, where a worker has taken a period of unpaid holiday, they will not be entitled to a backdated payment for it (or any earlier periods) if they do not submit a claim within a three-month limitation period after the claim has arisen.(1) The European Court of Justice's (ECJ's) decision in King v The Sash Window Workshop Ltd did not require a different approach.
In 2017 in King v The Sash Window Workshop Ltd, the ECJ ruled that where workers are not granted the paid holiday to which they are entitled under the EU Working Time Directive, they can carry over that right indefinitely until they have the opportunity to exercise it (for further details please see "Workers denied paid holiday can carry over rights until termination"). When workers' employment terminates, employers must pay them in lieu of the holiday that they did not take.
The implications of this judgment were potentially far reaching. The ECJ stated it was no defence that the employer, Sash Windows Workshop, had not realised that Mr King was a 'worker' in law. This effectively charged employers with ensuring that they have made a correct assessment as to an individual's status. Take the situation where individuals are treated as fully self-employed independent contractors, and so not afforded a right to paid holiday at all. If they are later found to have been workers, King provides scope for them to pursue a claim for multiple years of unpaid holiday, potentially encompassing their full engagement period.
However, as an ECJ decision, King arguably applies only to the four weeks' leave granted under the EU Working Time Directive and not the additional 1.6 weeks provided by the UK Working Time Regulations (or any contractual entitlements). Nonetheless, the sums to which workers could be entitled under the ECJ's ruling are potentially substantial where individuals have been engaged for several years.
The Employment Appeal Tribunal's new ruling in Smith v Pimlico Plumbers Ltd means that the impact of King will, at least in some cases, be limited. Mr Smith worked for Pimlico Plumbers as a plumbing and heating engineer and was treated as a self-employed contractor. While he was able to take holiday (eg, at Christmas, during the summer and on bank holidays), he had never been remunerated for such leave. The final period of unpaid holiday that Smith believed he was entitled to payment for was in February 2011. He left Pimlico Plumbers on 5 May 2011.
On 1 August 2011 Smith brought a claim in an employment tribunal asserting that he had in fact been an employee of Pimlico Plumbers. He claimed, among other things, that he was entitled to payment for unpaid holiday taken throughout his time working for the company (totalling £74,000). The issue of Smith's employment status ultimately went to the Supreme Court in 2018, where a landmark judgment decided that he was a worker (for further details please see "Supreme Court confirms Pimlico Plumbers are workers").
As a worker, Smith was entitled to holiday pay. The issue of whether he was entitled to a backdated payment for his unpaid holiday was sent back to the employment tribunal for its determination.
As the most recent period of holiday pay that Smith was claiming was from February 2011, and he had submitted his claims in August 2011, he appeared to be outside of the three-month time limit for bringing a claim. The employment tribunal had to decide whether the principles set out by the ECJ in King meant that Smith could carry over the right to claim payment for unpaid leave from year to year, so it became payable on his termination in May 2011. That would mean that his claims in August 2011 were "in time".
The employment tribunal found that the principles in King did not apply where the worker had taken the holiday but not been paid for it. Rather, they applied only where workers had not taken holiday because they would not be paid for it. Smith appealed to the Employment Appeal Tribunal.
The Employment Appeal Tribunal agreed with the employment tribunal and dismissed Smith's appeal, ruling that the ECJ's decision in King applied only to holiday that had not already been taken.
The ECJ had observed in King that the purpose of the right to annual leave was to allow workers to take adequate holiday to enable them to rest and that uncertainty over whether holiday would be remunerated might dissuade workers from taking it. However, the Employment Appeal Tribunal distinguished the position in Smith's case from that situation. While the Employment Appeal Tribunal acknowledged that the uncertainty brought about by a lack of remuneration could jeopardise a worker's ability to rest, it did not consider that the ECJ had meant that the worker should be reimbursed for leave that they had actually taken and self-evidently had not been deterred from taking.
Accordingly, the Employment Appeal Tribunal concluded that the most recent deductions that Smith could claim for were in February 2011, not when his employment terminated in May 2011. Therefore, his claims were out of time and the employment tribunal had no jurisdiction to hear them.
The Employment Appeal Tribunal went on to note that, even if Smith's claims for the deductions in February 2011 had been in time, his claims for earlier deductions throughout the rest of his time at Pimlico Plumbers would not have been. A previous Employment Appeal Tribunal decision (in 2014), had established that, where there is a gap of three months or more between deductions, they cannot be held to form a continuing "series of deductions" in relation to which a worker can bring a claim (Bear Scotland Ltd v Fulton). As the next most recent deductions were more than three months before the deductions in February 2011, Smith could not claim for them.
Smith had argued that a later Northern Ireland Court of Appeal decision (Chief Constable of Northern Ireland v Agnew) was inconsistent with Bear Scotland and should be followed. However, the Employment Appeal Tribunal could not be persuaded to depart from its own precedent in Bear Scotland.
This case provides welcome clarity for employers, following the uncertainty created by King, on the holiday payments for which workers are entitled to claim. The Employment Appeal Tribunal's judgment will be particularly useful for businesses engaging consultants or contractors and operating in the platform economy, where the prospect of a substantial payment for unpaid holiday could previously have incentivised individuals working on a self-employed basis to challenge their employment status.
Nonetheless, where someone who is a worker has taken holiday and not been paid for some or all of it, this would amount to an unlawful deduction from wages if they submit a claim in time. In 2014 the government acted to taper the financial effects of such claims significantly, by implementing a two-year backstop – that is, workers can retrospectively claim for deductions only in the preceding two years. Further, there remains the prospect that someone who, unlike Smith, has been denied any right to leave (paid or unpaid) could have a much more substantial claim.
For further information on this topic please contact Colin Leckey or Emma Langhorn at Lewis Silkin by telephone (+44 20 7074 8000) or email (email@example.com or firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
(1) Smith v Pimlico Plumbers Ltd – judgment available here.
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