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Case law: Employers face new uncertainty as EU court says UK limits on claiming unpaid arrears of holiday pay may be unlawful

Employers should review whether their staff – particularly self-employed contractors who may actually be workers and entitled to claim holiday pay – could make unlimited claims for unpaid arrears of holiday pay, after an EU court ruling cast doubt on the legality of UK laws imposing limits on such claims.

April 2018

This update was published in Legal Alert - April 2018

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A person was taken on as a 'self-employed consultant' and paid on a commission-only basis for 13 years. The self-employed – unlike workers and employees who are entitled to a statutory four weeks' paid holiday – are not entitled to paid holiday under the Working Time Regulations. The consultant took various periods of leave, but they were unpaid. At one stage, he was offered employment which would have entitled him to paid holiday, but he refused it.

When his work for the employer ended, he claimed he had been a worker all along, and not self-employed; and had therefore been entitled to paid holidays throughout his 13 years there. He claimed 13 years' arrears of holiday pay, amounting to around £27,000.

The Employment Tribunal agreed he was a full-time worker, and entitled to holiday pay and other workers' rights. The Court of Appeal referred an issue to the Court of Justice of the European Union (CJEU): whether, if he was in fact a worker, he could claim for all of his accrued but unclaimed holiday pay over the full 13 year period.

The relevant UK law at the time was:

  • Statutory holiday pay (ie, pay for four of the 5.6 weeks' holiday workers are entitled to) could not be carried forward to the next holiday year, unless a worker was off sick during that year and could not take their holiday
  • If there was a gap of more than three months between holiday underpayments, claims for arrears accruing before the gap were invalid
  • There was an overall two-year cap on the number of years for which an employee could claim arrears of holiday pay (introduced in 2014)

The CJEU ruled that EU law blocks any UK law preventing a worker from:

  • Carrying over unpaid holiday, whether they have had an opportunity to take that holiday or not – ie, a worker does not have to actually take unpaid leave before asserting that they have the right to be paid in respect of that leave
  • Claiming arrears of holiday pay (on termination) going back to the start of their relationship with their employer

Following the CJEU decision, the Court of Appeal must now decide the case. The CJEU decision may mean that it overrules the UK law that gaps of more than three months between holiday underpayments invalidates claims for such arrears. It may also throw into doubt the overall two-year cap. The net result could be that the liability of a UK employer for historic arrears of holiday pay becomes unlimited.

The outcome could be a particular problem for businesses purportedly engaging independent, self-employed people to work for them, but who subsequently discover (as Uber did recently with its drivers), that they are not actually self-employed, but workers entitled to paid holiday.

It is possible that the decision means that staff unable to take leave because they are absent from work long-term, or do not take leave for reasons other than sickness, will be able to claim unlimited arrears of unpaid holiday pay.

Operative date

  • Now

Recommendation

  • Employers should:
    • Review their staff holiday and sickness records to see if they could become liable for unpaid arrears of holiday pay, for example, because a worker was not entitled to carry holiday over to the next year under the previous UK rule
    • Review the true status of those engaged as self-employed contractors, including under the gig economy, who may in fact be workers, as the new ruling means they may now be entitled to make unlimited claims for unpaid arrears of holiday pay.

Case ref: King v The Sash Window Workshop Ltd C-214/16

Please note: An article published in the January 2018 edition of Legal Alert covered this case at an earlier stage in the legal process.

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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