The Rise of the King – another important case in the holiday pay saga

Posted on: December 5th, 2017

In another momentous case for holiday pay, the European Court of Justice has ruled that anyone deemed to be a ‘worker’  must be able to carry over paid annual leave indefinitely, where they have been denied the right to paid annual leave by their ‘employer’.

So, what was this case all about?

In the case of King v The Sash Window Workshop Ltd, Mr King worked for Sash Window Workshop on a self-employed contract from 1999 until his retirement in 2012. Under this contract, Mr King was paid on a commission-only basis and not entitled to paid annual leave. If he took any holiday from work, it was unpaid. 

Upon termination of his contract, Mr King attempted to recover payment for the taken and not paid annual leave throughout his engagement, as well as any not taken. Sash Window Workshop refused as he was ‘self-employed’. 

Mr King subsequently brought a claim in the Employment Tribunal, who decided that Mr King was in fact a worker and therefore entitled to paid annual leave. Sash Window Workshop argued that because paid holiday not taken in a leave year is lost, he was not entitled to any accrued but untaken holiday pay for previous leave years.

This point has now worked its way up to the Court of Appeal, with the Court of Appeal referring to the European Court of Justice for a preliminary ruling.

The decision

The ECJ has held that a worker is entitled to be paid on termination for any periods of annual leave that have accrued during the employment relationship, where the worker has been discouraged from taking it because it would have been unpaid.

The ECJ were far from sympathetic to Sash Window Workshop, commenting that it was irrelevant that the company wrongly believed Mr King to be self-employed and therefore not entitled to paid holiday – the company should have sought information to confirm its obligations. 

Unfortunately for Sash Window Workshop, the ECJ held that there was no limit on the amount of leave that could be carried over, nor the amount of leave years it could be carried over from. In an ‘ouch’ moment for employers, back pay claims can go all the way back to 1996, which is when the original Working Time Directive came into force. 

The ECJ differentiated this from holiday carry over caused by long-term sick leave, which presents ‘organisational difficulties’ for employers; this was a case of employers actively benefiting from the misclassification of a worker as self-employed and so they must bear the consequences.

Some very light relief for employers is that this case only applies to the 4 weeks’ EU holiday (not all 5.6 weeks of UK holiday).  

What next?

Employers who engage ‘self-employed’ contractors, who in reality are workers, may now face substantial holiday pay bills which could date back 20 years. This will be particularly worrying for those operating in the gig economy where employment status is currently under the spotlight. 

Uber recently submitted its petition to the Supreme Court to challenge the ruling that its drivers are workers. It has been announced today that this appeal has been refused, so Uber will now need to convince the Court of Appeal. This case makes the outcome even more important for the taxi giant, who could now be facing claims from its 40,000 drivers for backdated holiday pay.

The King case is now back with the UK’s Court of Appeal to submit its findings, based upon the judgment of the ECJ. We hope the Court of Appeal will be able to answer the difficult question – what is the financial loss here? Where the individual has continued to work instead of taking holiday, what financial penalty have they actually suffered? We’ll keep you updated on the Court of Appeal’s decision.

The case also places some doubt on the EAT’s decision in Bear Scotland v Fulton, which held that tribunals cannot award backpay for holiday beyond any 3 month gap. Surely, the case of King leaves this open to challenge. 

In the long term, this case further highlights the need for a wholesale review of the law in two areas:

  • in relation to holiday pay, following the kaleidoscopic case law landscape; and
  • the test for employment status – leaving it to employers to take a punt and hope for the best is simply not working, for either individuals or UK business. 

If you are concerned about the implications of this case in your business, please contact our employment team here and watch this space for our further updates on this ongoing topic.

Charlotte Allery is a Solicitor in the Employment and Commercial Services team at Coffin Mew.