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Holiday Pay – Employers Beware

December 14, 2017

In King v The Sash Window Workshop Limited, the European Court of Justice has reached a decision that is consistent with its commitment to a worker’s right to paid holiday.  The decision does, however, have potentially far-reaching consequences for employers.

The Facts

Mr King’s contract did not address annual leave and he was not paid for any leave he took.  In one year he took no leave whatsoever.   By 2012, he had accumulated a significant amount of accrued, untaken annual leave.   Despite electing to remain self-employed, on his dismissal, Mr King claimed to be able to carry over all accrued, untaken leave for which he said he was entitled to be paid as a worker.  He claimed that he had either been too busy to take the leave or did not take the leave because it was not paid.

Mr King was initially successful, but failed at the Employment Appeal Tribunal.  The Court of Appeal subsequently made a referral to the European Court of Justice.

European Court of Justice Decision

The Court held that:

  • Under EU law, a worker must know that he is going to be paid for annual leave before he takes it.
  • A worker can carry over accrued, untaken annual leave until the employment relationship ends where he has been prevented from exercising his right to paid annual leave.

Comment

In practice, the decision means that a worker who has not exercised his right to paid annual leave over several consecutive reference periods because his employer has refused to pay such leave is able to carry over and accumulate his right to paid annual leave until his employment ends.  As such, the decision suggests both that:

  1. Workers wrongly classified as self-employed contractors may be able to claim back pay for accrued, untaken annual leave for any years where they had worker status.
  2. The current legislation limiting holiday back pay claims to two years is incompatible with EU law. 

Significant doubt is now also cast over the Employment Appeal Tribunal’s decision in Bear Scotland v Fulton, which stopped an unlawful deduction from wages claim where there was a longer than three month gap in any series of deductions. 

The European Court of Justice’s decision only applies to a worker’s 20 days of holiday under the Working Time Directive.  However, under EU law, the definition of “worker” is more inclusive than the definition under domestic law.   Accordingly, and coupled with the abolition of employment tribunal fees, employers should be braced for a new influx of claims.  For employers whose self-employed contractors are actually workers, they could find themselves facing claims for holiday pay going back many years.  In addition, there will no doubt be arguments that the principles established in this case should apply equally to underpaid holiday (in addition to non-paid holiday).

The European Court of Justice has spoken clearly – workers are entitled to paid annual leave and must know, in advance, that they will be paid for any leave they take.  “An employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences,” stated the Court.  Employers should take note.