Opinion

Give it a rest - can claims for untaken holiday be taken back 20 years?

15th December 2017

Worker status and holiday pay have both been at the forefront of recent legal debate. However, it appears now that a finding of worker status could potentially have far reaching financial consequences in respect of holiday pay.

The recent case of King v Sash Windows considered the position in relation to untaken and unpaid holiday. The Court of Justice of the European Union (CJEU) held that a worker who does not take paid annual holiday due to the fact that the employer refuses to pay in respect of it, is entitled to carry over the annual leave entitlement to the next holiday year.

The Facts

  • Mr King joined the company in 1999 on what was described as a “self-employed commission-only contract”.
  • Sash Windows paid Mr King commission only due to his self-employed status and he did not receive any pay in respect of holiday, taken or untaken.
  • Mr King was offered employment during 2008 but chose to remain engaged on a self-employed basis.
  • Upon the termination of Mr King’s contract, he brought a claim against Sash Windows in respect of the following:
  • Annual leave taken for which payments were not made; and
  • Annual leave not taken since 1999 (Mr King had not taken a period of 24.15 weeks holiday).
  • Regulation 13(9) Working Time Regulations 1998 provides that leave may only be taken in the year in which it is due and cannot be carried over.
  • In the Employment Tribunal, Mr King was held to be a worker and not self-employed and on that basis, was entitled to be paid in respect of untaken and taken holiday. Sash Windows then appealed to the Employment Appeal Tribunal which allowed the appeal. The Court of Appeal then referred the matter to the CJEU.
  • The CJEU held that if a worker is prevented from taking their holiday due to the fact that the employer will not pay them, they have been prevented from exercising their rights under EU Law.
  • The CJEU were of the opinion that a worker cannot be stopped from bringing a claim due to the fact that a new holiday year has started. In addition, it was also highlighted that Sash Windows had benefitted from the fact that Mr King’s service went uninterrupted as he would not be paid for holiday.
  • The CJEU took the view that if an employer has prevented a worker from taking their annual leave entitlement by not paying for it, they will have to bear the consequences of that refusal.
  • Importantly, the CJEU also held that an employer who fails to pay holiday pay to workers will not be entitled to the usual limit on how much can be carried over. Theoretically then, claims for back pay in respect of holiday pay can be taken back to the year of the implementation of the Working Time Directive which is 1996. Employers could be faced with claims of back pay going back 20 years.

 

Considerations for employers

Sash Windows provides a clear warning for employers utilising the services of self–employed contractors. From Sash, it is quite clear that it is not an excuse for an employer to argue that it believed an individual to be self-employed. What is important is the reality of the situation and not the label attributed to the relationship. If an individual is in fact a worker and is unable to take holiday due to an employer’s refusal to pay for it, they are entitled to accumulate that leave and carry it over to a subsequent holiday year (dating back to 1996).

The need to be certain of employment status is arguably even more vital due to the decision in Sash Windows but is unfortunately, not helped by the complex case law surrounding employment status. Employers that utilise self-employed contractors and who therefore, do not pay in respect of holiday pay, must be certain of the self-employed status of these individuals. If they are held to be workers and have not been paid in respect of holiday or have been prevented from taking holiday due to the fear of not being paid, an employer could face a large bill going back potentially 20 years. Employers should in the midst of Sash Windows, review their holiday pay practices particularly, where self-employed contractors are engaged.

The concept of ‘normal’?

Perhaps more importantly for employers, although Sash Windows refers to untaken and unpaid leave, there are potential implications in respect of underpaid leave. The recent spate of case law concerning the calculation of holiday pay has confirmed that the amount of holiday pay must equate to the level of “normal” remuneration. The concept of normal has been held to include commission and more recently, purely voluntary overtime worked regularly. As a result of these recent decisions, many employers are left with the difficulty of whether holiday pay has been properly paid and is a reflection of normal remuneration.

The recent case of Bear Scotland confirmed that after a break of three months following the underpayment of holiday, an employee would be prevented from bringing an unlawful deductions claim. In addition, the Deduction from Wages (Limitation) Regulations 2014 (the “Deduction Regulations”), provides that Tribunals can only look back two years in respect of holiday pay claims. Both Bear Scotland and the Deduction Regulations therefore, provided useful limitations for employers in respect of claims for underpaid holiday.

There is now however, a potential argument to suggest that following Sash Windows, both the Deduction Regulations and Bear Scotland, might potentially prevent employees from exercising their EU rights. Sash Windows has made it clear that in respect of untaken and unpaid leave, claims can go back 20 years. Employers should therefore be aware that following Sash Windows, the underpayment of holiday may also be subject to the same rules, principles and scrutiny as untaken and unpaid holiday. Arguably and following Sash Windows, the break in the series of deductions argument set out in Bear Scotland may not be applicable in respect of underpaid wages given that such reasoning would prevent employees’ from exercising their EU rights. In addition, the limit of two years for back dated holiday pay claims set out in the Deduction Regulations is clearly contrary to the reasoning set out in Sash Windows.

Sash Windows suggests that claims for untaken and unpaid holiday could be taken back to 20 years. Could this same reasoning be applied in respect of underpaid holiday? There is certainly an argument to suggest that it can and employers should therefore take steps to ensure that their holiday pay practices are compliant with the need to pay holiday at a rate of normal remuneration.

 

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