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Paid annual leave: Workers allowed to carry over leave until an ‘adequate facility’ is provided

Is a worker required to take leave first before being able to establish whether s/he is entitled to be paid for it?  The Court of Justice of the European Union (CJEU) Advocate General has recently considered this proposition in the case of King v The Sash Window Workshop Ltd (SWW Ltd) and anor and his Opinion finds that such a requirement is incompatible with EU law.

Background

King worked for SWW Ltd on a purportedly self-employed basis from June 1999 as a salesman. He was paid on a commission only basis.

During 2008, King was offered a contract of employment which included the right to be paid annual leave; however, he chose to remain self-employed under a contract which had been silent on the issue. During King’s 13 years’ of service, he had taken some annual leave but he was never paid for this.

In October 2012, SWW Ltd terminated King’s engagement. King subsequently brought a claim for unpaid holiday pay, amongst other claims. His holiday pay claim was threefold: 1) for accrued but untaken annual leave during his final holiday year; 2) for unpaid leave he had actually taken during the course of his engagement; and 3) for all annual leave which he had been entitled to whilst working for SWW Ltd but had not been taken.

Chronology of proceedings

The Employment Tribunal at first instance held that a claim for holiday pay was well founded on all three limbs; the Tribunal accepted that he was a ‘worker’ for the purposes of the Working Time Regulations 1998 (WTR 1998). Interestingly, the Tribunal awarded him payment in lieu of annual leave which had been accrued but not taken during previous years which had also been claimed as a series of unlawful deductions. SWW Ltd appealed the decision.

The EAT allowed SWW Ltd to appeal on this issue. It held that the Tribunal had failed to make findings of fact to support its conclusions that 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 WTR 1998 that entitlement to leave expires at the end of the relevant holiday year.

King appealed to the Court of Appeal; he made reference to the European Court of Justice (ECJ), now the CJEU, and specifically queried whether Regulation 13 (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 (No. 2003/88) (WTD 2003) given that the worker would first have had to take unpaid leave before testing his or her entitlement to pay. 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.

AG Opinion’s on King

In short, the CJEU Attorney General’s (AG) Opinion addresses the third limb of King’s claim for holiday pay. His Opinion states that:

  • There is a right for workers to carry over annual leave from one holiday year to the next; and
  • There is a right for workers to claim a payment in lieu of annual leave for accrued but untaken leave in previous years if no opportunity or ‘facility’ has been provided for the worker to take that leave.

AG Tanchev argued that it is the employer’s obligation to provide workers with the opportunity to exercise the right to paid annual leave under Article 7 of the WTD 2003; he refers to this as an “adequate facility”. If no opportunity or ‘facility’ to exercise that right is provided to the worker, it follows that they would be entitled to payment in lieu of all untaken annual leave covering the whole period of engagement. However, once that opportunity or ‘facility’ has been provided (through, for example, a sufficiently detailed contract / policy on the exercise of paid annual leave) the responsibility falls on the worker to exercise his / her right to paid annual leave. The worker would not then be entitled to a payment in lieu if they do not take it.

Comment

It should be noted that the AG Opinion is not binding on the CJEU nor the UK.  However, the Opinion is particularly controversial in light of the UK Employment Tribunal’s expansive approach to the definition of a worker for the purposes of the WTR 1998 which has been prominent in the ‘gig economy’ cases such as Uber and Citysprint where individuals have been purportedly engaged on a self-employed basis. This is because a finding of worker status could mean that upon termination payment may become due for historical periods of untaken annual leave. The Opinion is therefore particularly problematic when read against the gig economy cases as employers who mistakenly believe that they are engaging individuals on self-employed contracts would probably not provide an opportunity / facility for individuals to exercise the right to annual leave as this would run contrary to the self-employed status of the individual.

The AG’s Opinion does not sit comfortably with recent decisions of the UK legislature and judiciary which have sought to limit historical claims for holiday. This can be seen in the EAT decision of Bear Scotland Ltd and others v Fulton and others which ruled that underpaid holiday pay cannot be claimed as the last in a series of deductions where more than three months has elapsed between deductions. Clearly, if a worker had taken no holidays, they would be unable to establish a “series” of deductions. In addition, the Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322) confirmed that from 1 July 2015, Employment Tribunals can only look back two years from the date of the complaint when considering unlawful deductions. It is therefore questionable how the judiciary would allow claims for lengthy carry-over periods in light of the above and whether it would be something better left to Parliament to legislate on.

As a final point to note, even in the event that the CJEU follows the opinion of AG Tanchev, the binding effect of its decision on the UK will depend on whether it is still part of the EU and what stance is taken by the government in relation to legal decisions derived from the CJEU. Subject to any changes in the approach to be taken to Brexit by the government it seems that King would be a likely candidate for the UK to depart from the oversight of the CJEU on holiday pay.

Further guidance may be provided in the awaited Taylor Report. Updates will be provided.  For further details on employment status please visit our employment status – the barometer hub

Read all our holiday pay blogs here

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