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Holiday pay claims: CJEU “opens window” to historic claims

The Court of Justice of the European Union (“CJEU”) has agreed with the Advocate General (“AG”) and held that workers who have been denied the opportunity to take holiday not only accumulate leave, but can carry it over for years and are entitled to payment in lieu on termination.

The EAT’s previous finding that a worker must take holiday without pay before bringing a claim results in the Working Time Regulations 1998 (“WTRs”) being incompatible with Article 7 of the EU Working Time Directive.

Background

Mr King worked for the Sash Window Workshop Limited (“SWW Ltd”) on the basis of what was purported to be a self-employed commission-only contract from 1 June 1999 until 6 October 2012. Under that contract Mr King was paid on a commission-only basis.  When he took annual leave it was unpaid.  Mr King was offered an employment contract in 2008, which included the right to holiday pay but he elected to remain self-employed.

Upon termination of his contract Mr King sought to recover payment for his annual leave, including: (1) annual leave taken and not paid; and (2) annual leave not taken, for the entire period of his engagement. SWW Ltd rejected his claim on the basis that Mr King was purportedly self-employed.

The Employment Tribunal found that Mr King was a “worker” and entitled to all the rights which ensue, including holiday pay dating back 13 years.

SWW Ltd appealed to the EAT which allowed the appeal. It held that the Tribunal had failed to make findings of fact to support its conclusions that Mr King was prevented from taking his annual leave for reasons beyond his control.  As such, it ruled that there was no basis for departing from the usual position under the WTRs that entitlement to leave expires at the end of the relevant holiday year.

Mr King appealed to the Court of Appeal; he made reference to the CJEU, and specifically queried whether Regulation 13 of the WTRs (which governs the right to be paid annual leave) is consistent with the right to be paid for annual leave under Article 7 of the EU Working Time Directive given that the worker would first have had to take unpaid leave before testing his or her entitlement to pay. Mr King’s appeal also sought to test the extent to which untaken paid leave can be carried over for the purposes of claiming a payment in lieu of untaken holiday pay upon termination of employment under Article 7(2) of the Directive.

The Court of Appeal made a reference to the CJEU for a preliminary ruling on the issues raised in the case.

Advocate General

Advocate General Tanchev gave his opinion that employers are bound to provide an “adequate facility” to enable the taking of annual leave, such as a contractual entitlement or legally enforceable administrative procedures. Where no such facility is provided a worker should be entitled to payment in lieu of annual leave untaken covering the whole period of the engagement.

The CJEU

The CJEU agreed with the AG. The CJEU recognised annual leave as an important principle of EU social law which must not be derogated from by Member States.  Workers should be entitled to remuneration when they take annual leave.  If a worker is faced with uncertainty as to remuneration owed to him during a period of leave, he would not be able to fully benefit from that leave as a period of relaxation and leisure.  Workers would inevitably be dissuaded from taking the leave and this goes against the principles of EU law.

The CJEU went on to consider the EAT’s interpretation of the WTRs that a worker would need to take unpaid leave first before being able to bring a claim. The CJEU held this was incompatible with the Directive.  Mr King would have been unable to bring a claim in respect of the untaken paid leave due.

The CJEU deliberated the question of carry over of annual leave. The CJEU held that where a worker is prevented from taking annual leave due to the employer refusing to pay for such leave, the worker can carry the leave over and is entitled to payment on termination.  The CJEU considered whether the limit on carry over applicable in sick pay cases should be applicable and decided it should not.  Case law on sick pay protects workers by allowing a degree of carry over but also employers by limiting the extent of carry over.  Sympathy for the employer was lacking in this case where the CJEU saw no reason why the employer could not have allowed holiday pay and noted that the employer benefitted from Mr King not taking holiday.  SSW Ltd’s excuse that they thought Mr King was self-employed was met with short shrift as a valid reason for the non-payment.  It is up to each employer to be informed of their obligations in that regard.

The case will now be referred back to the Court of Appeal where we will hopefully receive more clarity over its application in the UK.

Comment

The decision does not sit comfortably with UK case law and legislation. It is questionable what impact this case will have on the EAT’s decision in Bear Scotland Limited v Fulton which ruled that unpaid holiday pay cannot be claimed as the last in a series of deductions where more than three months has elapsed between deductions.  Many claims will be out of time following the Bear Scotland limitation.  It is also uncertain what impact the decision will have on the two year back stop on unlawful deduction from wages claims introduced in 2015.  Employers have until now been able to take some comfort in these limitations on historic holiday pay claims.

This case could have a significant impact on employers engaging so-called “self-employed contractors” in the gig economy. We’ve seen a number of cases where this status has been successfully challenged and individuals working in the gig economy have been classed as workers and are therefore entitled to holiday pay.  These workers will potentially be able to claim holiday back pay dating back to when they started work (or 1998 when the WTRs were introduced).  Employers working in this sector should calculate the potential risk of historic holiday pay claims following this decision, bearing in mind the case only applies to the four weeks leave granted under the Directive.  Employers should however be mindful that the case is being remitted to the Court of Appeal when further guidance should be available.

Perhaps this decision will put holiday pay post-Brexit higher up on the agenda for reform. We will keep you updated.

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further