The EAT has upheld the Employment Tribunal's decision that Mr Smith's claim was out of time. The case centred on the application of the Court of Justice of the European Union (CJEU) case of King v Sash Windows, which allowed leave to be carried over indefinitely where a worker is deterred from taking leave because it will not be paid for by the employer. The question before the EAT in this case was whether Sash Windows applies to situations where the annual leave is taken, but is unpaid. The EAT found that it does not.
Mr Smith worked for Pimlico Plumbers as a plumbing and heating engineer between August 2005 and May 2011. During the course of the engagement Pimlico Plumbers maintained that Mr Smith was an independent contractor and as such was not entitled to paid annual leave. Despite not being paid for leave, Mr Smith did take periods of unpaid annual leave. Following the termination of his contract, Mr Smith brought a number of claims including a holiday pay claim in relation to unpaid annual leave. The initial question to be determined was the employment status of Mr Smith; in 2018 the Supreme Court confirmed that Mr Smith was a worker, not an independent contractor.
With worker status confirmed, Mr Smith went on to pursue his claims. An Employment Tribunal subsequently dismissed Mr Smith's holiday pay claim on the basis it was brought out of time. The Tribunal held the CJEU decision in the case of King v Sash Windows did not entitle Mr Smith to claim in respect of holiday which had been taken but was unpaid. The key distinction was that Mr Smith had taken the annual leave, whereas the Sash Windows case concerned an individual who it was held had been denied the opportunity to take leave, because he knew the leave would be unpaid.
King v Sash Windows – re-cap
In this case the CJEU 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 CJEU decision threw into question the UK's two year back stop on unlawful deductions claims and the decision of the EAT in Bear Scotland Limited v Fulton which held that unpaid holiday cannot be claimed as the last in a series where more than three months has elapsed between deductions. Workers who have been wrongly labelled as "self-employed contractors" and as such have not been provided with an "adequate facility" to take holiday could be entitled to claim holiday pay dating back to when they started work (or 1998 when the Working Time Regulations were introduced).
Mr Smith appealed to the EAT on the basis that the Employment Tribunal had erred in its approach to the Sash Windows case and that the claim was not out of time.
The EAT dismissed the appeal and found that the Employment Tribunal had not erred in its interpretation of King v Sash Windows. The Sash Windows case was not concerned with leave that was taken but unpaid as per Mr Smith's case. The carry-over rights set out in Sash Windows relate to leave that was not taken as a result of the employer's failure to remunerate such leave. There is no reason to suggest that such carry-over rights should extend to Mr Smith's circumstances where leave was in fact taken and so Mr Smith could not argue he had been denied the opportunity to take that leave.
The EAT also agreed with the Tribunal that there was no reason to extend time as it had been reasonably practicable for Mr Smith to have brought his holiday pay claim within the set time limit.
Confirmation by the EAT that the Sash Windows indefinite carry over is limited to situations where the worker is deterred from taking annual leave due to lack of remuneration will come as a welcome relief to many employers. The Sash Windows principle will not apply when the worker has chosen to take their annual leave even though they will not be paid if they do so.
There have been a number of employment status cases in recent years, with a predominant finding of worker status. The facts of this case and the EAT's interpretation of Sash Windows provides some comfort for employers, however there is still a risk when individuals are deterred from taking leave due to no remuneration. Employers engaging individuals in the gig economy should take the time now to calculate the potential risk of a worker status finding.
It is worth noting also that the EAT made obiter comments that the Bear Scotland v Fulton three month gap decision referred to above is still good law. Had the point arisen for consideration, the EAT would not have departed from Bear Scotland. However, please also note that the Northern Irish case of Chief Constable of Northern Ireland Police v Agnew case is on appeal to the Supreme Court. We will keep you updated.
Holiday pay is notoriously complex. If you need any assistance with the issues raised in this update please do not hesitate to get in touch via the contact links below.