The Background

Since October 1998 every worker has had the statutory right to 4 weeks paid annual leave. This rose to 4.8 weeks in October 2007 and 5.6 weeks in April 2009.

A worker is not just an employee. Workers are individuals who work under a contract "to do or perform personally any work or service for another party to the contract whose status is not by virtue of the contract that of a client or customer of any professional business and undertaking carried on by the individual". Based on established case law, that is essentially anyone supplying services personally. So for example, the individuals claiming against Canada Life were "self-employed" commission agents.

No monies can be paid in lieu in respect of holiday other than on termination of the engagement.

Canada Life Limited v Gray and Farrar

Mr Gray and Mr Farrar were engaged as commission agents under a commission-only agreement by Canada Life Limited, prior to the introduction of the Working Time Regulations on 1 October 1998. (1968 and 1975 respectively). They had received no holiday pay since the introduction of the Working Time Regulations on 1 October 1998. Both had asked if they were entitled to annual leave and in error, Canada Life, not appreciating they were workers for the purpose of the Working Time Regulations, had said no. Their engagement ended on 31 October 2002. In January 2003, they claimed unpaid holiday pay as an unlawful deduction of wages.

On appeal the Employment Appeal Tribunal (EAT) accepted that the claims were not dependent on the Claimants actually taking 4 weeks (as it was) annual leave during the relevant holiday year.

Holiday pay amounts to "wages" so the withholding of holiday pay amounted to an unlawful deduction of wages.

The issue was whether by failing to pay holiday pay from as early as 1 October 1998 Canada Life had made a series of deductions. This was significant since the three month time limit for bringing a claim for unlawful deduction of wages begins from the "last deduction or payment". Canada Life argued that because no holiday had been taken in September or October 2002, no holiday pay was due at the end of the assignment and, therefore, there was no deduction.

Commission payments were however due on 20 October 2002 for September 2002, 20 November 2002 for October (1 -25) 2002 and 20 December 2002 for the period up to 31 October 2002. The Tribunal said as no holiday pay was included in these payments there was an ongoing series of deductions.

The Tribunal had found that the claimants entitlement to holiday pay lasted up to work done on 31 October 2002 so the claims were in time.

The EAT agreed, although it came to its conclusions through a slightly different route. Pay in lieu of holiday became due on 20 November 2002 and 20 December 2002 when wages (the commission) was paid to the claimants. No payment in lieu of holiday entitlement had been made. These were therefore unlawful deductions from wages (of holiday pay due under the Working Time Regulations) and the deductions formed part of a series of deductions stretching back to 1 October 1998.

The effect of the decision was that Mr Farrar was awarded just over £19,000 and Mr Gray just over £30,000.

The risks

Having been overturned by the Court of Appeal, this decision has been reinstated by the House of Lords. Claimants can now choose whether to bring claims for unpaid holiday pay under the Working Time Regulations 1998 where the time limits are more stringent, or as unlawful deduction of wages where there is more flexibility.

Claims made as unlawful deduction of wages can lead to the backdating or "leap frogging" of claims where there has been a series of deductions as in this case. For commission-only agents engaged like Mr Gray and Mr Farrar, there is a risk of backdated holiday pay claims to the beginning of the assignment which could be as far back as 1 October 1998.

There is a further argument that where regular payments of commission (say on a monthly basis) are paid when the engagement or assignment has ended, these continue to amount to ongoing deductions and therefore keep the clock ticking for claims.

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