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Holiday back pay risks to business

Published 04 December 2017

Another case at the Court of Appeal(1) where the individual is not an employee but is deemed to have ‘worker’ and the case was in relation to holiday pay and what could be carried over if the individual has not taken paid holidays.

The Employment Appeal Tribunal(2) in the case The Sash Window Workshop Ltd v King(3) made suggests that workers should be allowed to carry over any untaken holiday into the next year if they are genuinely prevented from taking annual leave for "reasons beyond their control" other than sickness absence.

The Working Time Regulations 1998(4) were to be interpreted differently as a result of two cases the Pereda v Madrid Movilidad(5) and then the NHS Leeds v Larner(6) case, where the Court of Appeal held that, in order to interpret the WTR 1998 in line with the European Directive, regulation 13(9) should be read as including the words in bold below:

"Leave to which a worker is entitled under this regulation may be taken in instalments, but -

(a) it may only be taken in the leave year in respect of which it is due, save where the worker was unable or unwilling to take it because he was on sick leave and as a consequence did not exercise his right to annual leave".


The Sash Window Workshop Ltd appealed the EAT decision to the Court of Appeal. The Court of Appeal referred this issue to the European Court of Justice (CJEU).

The Court of Appeal considered the question as to whether a worker who is denied payment for his leave whilst working is entitled to a payment in lieu on termination for untaken leave during the course of the engagement.

The CJEU held that a worker must be able to carry over the unused holiday when the employer does not put that worker in a position to exercise the right to take paid annual leave.

The CJEU decision casts doubt on the limitations on claims for historical non-payment of holiday pay in the EAT case of Bear Scotland Ltd and others v Fulton and others(7) . The Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322)(8) , which impose a two-year limitation period on most unlawful deductions from wages claims, also now appear to contravene EU law where the case relates to holiday pay.

Background of the case

Mr King worked for The Sash Window Workshop Ltd from 1999 until 2012 as a full-time self-employed salesman and he was paid entirely on a commission basis. During his engagement, he was not paid for his holiday or for any time as sick leave. However, Mr King did take a varying amount of unpaid holiday each year but kept this to a minimum where possible.

Mr King’s engagement was terminated upon him reaching the age of 65 in October 2012 and as a result, he brought a series of claims including age discrimination and holiday pay as a series of unlawful deductions for the full 13 years he had worked for the Company.

Mr King won claims for age discrimination(9) and unpaid holiday pay in the Employment Tribunal.  He was also successful in full with all three categories of holiday pay claimed and received the following awards:

· Holiday Pay 1 – to represent the amount of holiday accrued but untaken at the date of termination for the current leave year;

· Holiday Pay 2 – pay for leave requested and taken in previous years, claimed as a series of unlawful deductions from wages.; and

· Holiday Pay 3 – pay in lieu of untaken leave that had accrued in all previous years.

The Company appealed to the EAT on the unpaid holiday for the 13 years engagement, however, the Company did not appeal on the worker status of Mr King or on the discrimination aspects of the case. It was then to the Court of Appeal and as stated above was subsequently referred to the CJEU.

Observations

Some of the comments from the CJEU ruling:

“Unlike in a situation of accumulation of entitlement to paid annual leave by a worker who was unfit for work due to sickness, an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences.”

The judgment also made it clear that Sash Window Workshop’s ignorance on King’s employment status was no defence for not paying his holiday or sick pay:

“it is for the employer to seek all information regarding his obligations in that regard,”.

Employee or worker or self-employed contractor this is an issue for a lot of employers and those employers who find that those they have always regarded as self-employed contractors actually have worker status need to relook at their contracts and actually working relationship as they could potentially be faced with a significant financial liability for unpaid holiday pay.

As the decision refers to the UK’s obligations under the EU-derived Working Time Directive, this is an example of a decision that UK courts will still have to observe prior to Brexit and there will be more clarity on the extent of employers’ holiday pay obligations when the case returns to the Court of Appeal.

What should employers do now?

Review the following:

·  The workforce contracts and contractual terms

·  The actual working relationships and roles they undertake

·  Understand who is receiving paid annual leave

·  Annual leave provisions, policies and procedures

References

1.  The Court of Appeal [Internet]. [cited 2017 Dec 4]. Available from: https://www.judiciary.gov.uk/you-and-the-judiciary/going-to-court/court-of-appeal-home/

2.  Employment Appeal Tribunal - GOV.UK [Internet]. [cited 2017 Dec 4]. Available from: https://www.gov.uk/courts-tribunals/employment-appeal-tribunal

3.  The Sash Window Workshop Ltd & Anor v King (Contract of Employment : Sick pay and holiday pay) [2014] UKEAT 0057_14_0112 [Internet]. 2014. Available from: http://www.bailii.org/uk/cases/UKEAT/2014/0057_14_0112.html

4. The Working Time Regulations 1998 [Internet]. [cited 2017 Dec 4]. Available from: http://www.legislation.gov.uk/uksi/1998/1833/contents/made

5.  CURIA - Documents [Internet]. [cited 2017 Dec 4]. Available from: http://curia.europa.eu/juris/document/document.jsf?text=&docid=191322&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=28131

6.  NHS Leeds v Larner [2012] EWCA Civ 1034 [Internet]. [cited 2017 Dec 4]. Available from: https://www.employmentcasesupdate.co.uk/site.aspx?i=ed12206

7.  bear-scotland.pdf [Internet]. [cited 2017 Dec 4]. Available from: https://www.judiciary.gov.uk/wp-content/uploads/2014/11/bear-scotland.pdf

8.  The Deduction from Wages (Limitation) Regulations 2014 [Internet]. [cited 2017 Dec 4]. Available from: https://www.legislation.gov.uk/uksi/2014/3322/contents/made

9. Age Discrimination [Internet]. Castle Associates Ltd. 2016 [cited 2017 Dec 4]. Available from:

 

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