In the case of The Sash Window Workshop and another v King, the European Court of Justice (ECJ) has ruled that in circumstances where an employer has not provided a worker with paid leave, the right to paid leave carries over until the worker has the opportunity to take it. Termination of employment the worker has the right to payment in lieu of any such leave that remains outstanding.

In the same case, the Employment Appeals Tribunal (EAT) had previously stated that “should an employer grant only unpaid leave to a worker, the only option available to the worker would be to take leave without pay and then bring an action to claim payment for it”. The Advocate-General gave an opinion earlier this year that this was incompatible with EU, and the ECJ has now confirmed that this aspect of the Working Time Regulations 1998 are incompatible with the EU Working Time Directive.

Mr King was a salesperson who worked on a self-employed, commission-only contract so he received no pay when he was on holiday or ill. When he ceased working for the company in 2012 he brought various Employment Tribunal claims including a claim that there had been a series of unlawful deductions from wages stretching back over 13 years.

He established that he was a “worker” for the purposes of the Working Time Regulations and therefore entitled to paid annual leave. In the EAT it was accepted that he was entitled to an award in respect of holidays he had actually taken unpaid. However, it was held that he was not entitled to an award for any additional statutory holidays to which he should have been entitled but had not in fact taken. Mr King then appealed to the Court of Appeal, who referred this point to the ECJ.

The ECJ concluded that EU law requires that a worker should be able to carry over and continue to accumulate paid annual leave until the termination of employment where the worker has been unable to exercise his or her rights over several consecutive reference periods because the employer has failed to provide paid leave. This suggests that the Deduction from Wages (Limitation) Regulations 2014, which limit back pay claims to two years, may also be incompatible with EU law.

This decision is highly significant for employers who have engaged people on a self-employed or contractor basis. It suggests that workers who have been wrongly classified as self-employed contractors may be able to claim back pay for unpaid annual leave going back many years to when they could first be classed as having ‘worker’ status. It also suggests that employers may not be able to rely on the two year back pay limit. The case will now be remitted back to the Court of Appeal who will determine how the award should be quantified in these circumstances.

The decision also raises the important question in the context of Brexit and what role, if any, the ECJ will play in the post Brexit legal landscape. The decision deals with obligations under the EU-derived Working Time Directive and is a decision which the UK courts will have to observe prior to Brexit and during any transition period. However, it is less clear what the position will be if the EU Withdrawal Bill (which will copy all existing EU legislation into domestic UK law) is passed.