Holiday pay - and backdating claims over many years for workers mislabelled as being self-employed

A British window salesman who did not receive a paid holiday for 13 years has just won his case in the European Court of Justice for the right to receive back pay for the holiday pay accrued over the whole of that 13 year period.

You may think that this may not seem remarkable. “Surely, he is entitled to paid holiday leave”, you say. There are four significant complications in this case. The first is that he had worked for the business on a “self-employed” basis throughout that period, and so the business had assumed that he was not entitled to holiday pay because of him not being an employee. Secondly, in that period he had not requested paid holiday leave. Thirdly, since 2014 we have had regulations that limit the period that back dating of any deduction from wages (which can include holiday), which have limited the period of backdating to two years. Finally, we have also had the ruling of Mr Justice Langstaff (the then President of the Employment Appeals Tribunal) in the case of Bear Scotland v Fulton, which held that Employment Tribunals cannot award backpay for unpaid holiday leave beyond any 3 month break in unpaid holiday leave. 

This case could have a major impact in light of the current litigation regarding employment status by the Uber drivers and others.

Mr Conley King worked for Sash Windows on what was understood to be a “self-employed” basis. He worked for the business in that capacity from 1999 to 2012. The basis of his income from the work was that it payment on commission. His work for the business was brought to an end in 2012. Mr King then brought a claim in the Employment Tribunal in which he contended that he was a “worker”- with various legal rights and entitlements, and in the claim also sought to recover £27,000 of holiday pay that he said he should have received over the years working for the business.

Naturally, Sash Windows argued that Mr King worked for years as a self-employed salesman in an arrangement that suited him too. They also argued that Mr King was at no point prevented from taking any time off as holiday, as there was no requirement for him to request it or for the business to agree it.

The Employment Tribunal found that Mr King was a “worker” and was not in fact genuinely self-employed. That decision was contested by Sash Windows, and the case has eventually made its way to the European Court of Justice (commonly known as “the ECJ”, but now more correctly abbreviated to CJEU).

The European Court of Justice was asked to address the question of entitlement to holiday pay for Mr King, and in particular if he had “lost” the holiday entitlement from previous holiday years. The employer argued that the Working Time Regulations 1998 provide that if paid holiday is not taken in a leave year then it is lost (ie not carried over into the next holiday year- unless of course due to the illness of the individual or not taken at the time due to that person being on statutory leave such as parental leave, or maternity leave). The European Court ruled that it was not lost. The court held that if the worker is prevented from taking their paid holiday because the employer will not grant the paid holiday (as was the case here, as the business did not accept during the period Mr King worked for them that it was his in fact his “employer”) then the worker was being prevented from exercising their legal rights. In that situation the court concluded that the worker cannot be stopped form bringing a claim just because a new holiday year had started.

The consequence is that the court ruled that the UK’s Working Time Regulations 1998 were incompatible with EU law insofar as they indicated that a worker would lose their rights to the paid holiday entitlement if they did not take that holiday within the particular holiday year in question. The Court was asked to decide whether EU law allowed the worker to claim payment for the entire length of their employment. It concluded that there was no time limit on that claim. It stated that “An employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences.” The European Court ruled that an employer that has failed to grant paid holiday to workers should not be entitled to the benefits of the normal time limits on how much can be carried over. The practical impact of that ruling is that the backpay claims could go back all the way to year 1996, when the UK had been bound to implement the EU’s Working Time Directive.

There are significant implications for businesses that routinely use staff on a self-employed contract basis. This is a case that could result in a large amount of holiday pay having to be paid to those staff. In a BBC report, the comment has been made that this ruling could have a major impact on those people that work in the “gig” economy, which typically includes workers such as Uber drivers, and couriers (see “Court backs salesman’s claim for 13 years of holiday pay” accessed on 29/11/2017 at www.bbc.co.uk/news/business-42164201). The article quotes Dr Moyer-Lee, the head of the IWGB union, in which it notes his comment that the case is a:-

 “game-changer for the so-called gig economy”

and that:-

 “The law is now recognising the massive unpaid debt of “gig economy” companies to their workers and IWGB members will be coming to collect.”  

In our view the case has broader ramifications than to those involved in what has become known as the “gig economy”, as the use of self-employed contractors has been going on for many years, and in traditional industries as well as those more frequently linked to the “gig economy.” Many businesses need to review their staffing arrangements in light of this case, as well as consider and prepare for potential claims of holiday pay from their staff. Naturally this case, and the issues raised in it, are directly linked to the issues in the current Uber litigation.

The case has an impact on all businesses that use “self-employed” staff who on analysis are actually “workers” under employment law. The case also puts into serious doubt the reliability of the ruling in Bear Scotland v Fulton in which the appeal court ruled that Employment Tribunals cannot award backpay for unpaid holiday pay beyond any 3 month break in unpaid holiday leave (which we must say we always felt was wrongly decided!). The practical impact is also complicated by the legal divergence between the paid holiday rights provided by EU law and those provided by UK domestic law. This ruling will strictly only apply to the paid leave entitlement directly derived under EU law- ie to an entitlement of 4 weeks paid holiday leave each year, as opposed to the extra UK domestic law entitlement which takes the normal entitlement up to 5.6 weeks paid holiday each year. So, looking at the backdating over 20 years, the top line would appear to be 20 years X 4 weeks pay, which equals 80 weeks pay per worker. Obviously, there will be relatively few in that particular boat, as most people covered by this case will have been working for the business in question for less than 20 years. Nevertheless, the impact is likely to be significant.

This case suggests that workers that are wrongly classified as self-employed contractors may be able to claim back pay in respect of unpaid holiday leave going back many years, whether or not they requested leave in those years, and even if they and the business both considered that the individual was self-employed during that time.  

This case will now go to the UK’s Court of Appeal to consider, but the Uber litigation on employment status looks to be destined for the Supreme Court. The issues in the two cases are closely linked, but in any event this case should result in all businesses that use staff on an ostensibly “self-employed” basis to review their arrangements. They should note that the Employment Tribunals and courts will not limit their analysis to the wording of the contract between the two parties, and will look at the totality of the working relationship.

If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.