European window case sheds light on annual leave
A new Judgment of the European Court carries a stark warning for those engaging workers and refusing them any paid annual leave.
A new Judgment of the European Court carries a stark warning for those engaging workers and refusing them any paid annual leave. The case of King v The Sash Window Workshop holds, that under European law workers can claim for many years of pay in lieu of holiday where the employing organisation refused to allow paid leave. This may have significant ramifications for those engaging contractors and other workers personally (where paid leave is not agreed). It may also have further implications for other ongoing holiday pay disputes faced by employers (for example, about the amount of holiday pay staff should receive).
Mr King was a salesman engaged from June 1999 until October 2012 on a self-employed commission-only contract. When he took annual leave it was unpaid and that meant he didn’t take that much leave. When his engagement ended, he claimed for holiday pay, including over 24 weeks of pay in lieu of (arguably legally) accrued leave which he had never taken. The European Court was asked to decide: if he had to take the leave in the year in order to be paid for it or to claim the pay; and whether national law could prevent the carry over and accumulation of such leave/pay. In summary, could Mr King claim for payment for holiday which he had never asked for or taken, simply because his employer had said he would not be paid for it?
This Judgment holds that European law precludes a worker from being obliged to take the annual leave if it has not been established that he will be paid for it. So where a worker is refused pay for leave by their employer (but legally they are actually entitled to it), the UK working time rules which require a worker to ‘use it or lose it’ within the year, are not compatible with EU law.
It also finds that where paid leave is refused, the worker must be able to keep carrying over and accumulating that leave (for years). This has significant ramifications for anyone who has engaged a worker to provide work personally for a number of years but refused them paid leave, as (at least under European Law) they will be able to claim now for all the leave accrued over many years. This is limited to only the four weeks of European leave each year (usually twenty days for a full time worker), not the UK minimum of 5.6 weeks (usually 28 days). The European Court also draws an important distinction between the ill employee who is unable to take leave, where carry over can be limited to 18 months after holiday year end to avoid accumulation (under other existing case law), and an employee refused paid leave at all.
What does this mean for me?
If as an organisation you have engaged people on the basis that they are not workers and/or are not entitled to paid annual leave, but you have got that categorisation wrong, this Judgment leaves you potentially exposed to large bills for accrued leave when the individuals raise it or exit from the organisation. This is a particular issue for those in the gig economy utilising novel engagement methods which identify individuals as self-employed and in business in their own account, which might be vulnerable to challenge. It also raises a risk for those who engage consultants and choose not to give them paid leave, if the consultants are required to provide their services personally.
However what the precise effect of this Judgment is for the many of you with disputes (or potential disputes) about the amount of holiday pay, remains to be seen. Some commentators are questioning whether the current position on time limits for claims will survive the European Court’s reasoning. Indeed it has even be questioned whether the Deduction from Wages (Limitation) Regulations 2014 (which introduced a two year time limit on how far back a series of deduction from wages holiday pay claims could go) might be vulnerable to legal challenge. This Judgment itself is clearly focussed on complete refusal of paid leave, so we are far from convinced that the consequences will be that significant. However it does introduce some added concern for those of you grappling with holiday pay arguments and issues. It might introduce an additional onus on you to try to resolve arguments now.
Holiday pay is a legal minefield, with the law continuing to shift as new decisions are delivered. This Judgment is important, but how important remains to be seen (as it will need to be interpreted for UK law by UK Courts). Refusing paid annual leave to those who may well be entitled to it, is now higher risk than before. If you are unsure about your best approach to annual leave, or your potential exposure if claims are brought, please do speak to us so that we can identify precisely what this means for you.
If you have any questions or you need assistance with holiday pay issues, please speak to your usual advisor in the Weightmans employment, pensions and immigration team or Phil Allen (firstname.lastname@example.org).