A recent Opinion from the Advocate General of the Court of Justice of the European Union (CJEU) points towards greater protection for workers who have not been given the right to take paid annual leave and could create significant liability for past holiday pay. As with recent cases in the Employment Tribunals in which individuals ostensibly engaged on a self-employed basis have had their worker status confirmed, this Opinion follows the current trend for recognition and enforcement of workers' rights.
Background and previous Tribunal decisions
Mr King was engaged by Sash Windows as a self-employed salesman for 13 years. His terms of engagement with Sash Windows were silent on the issue of holiday. During his engagement, Mr King generally took between three or four weeks of annual leave a year, on an unpaid basis.
Mr King’s engagement with Sash Windows was terminated when he turned 65 years’ old. He brought claims to the Employment Tribunal for age discrimination and holiday pay, asserting that he was not genuinely self-employed but was in fact a worker. In his claims, Mr King stated that he would have taken more annual leave each year in accordance with Working Time Regulations entitlements (see below) if the leave had been on a paid rather than unpaid basis.
The Employment Tribunal agreed with Mr King that he was a worker. Under the Working Time Regulations, workers are entitled to paid annual leave and so the Employment Tribunal had to consider what payments should be made to Mr King. It held that he was entitled to pay for the annual leave that he had taken during his 13 years with Sash Windows and for untaken leave during that same period. Sash Windows appealed against the award of holiday pay in relation to accrued but untaken annual leave.
The Employment Appeal Tribunal allowed the appeal by Sash Windows and held that a worker would have to take annual leave and only then would they be able to establish whether or not they were entitled to be paid for it. It is this issue that was referred to the CJEU by the Court of Appeal and on which the Advocate General gave his opinion.
Advocate General’s Opinion
The Advocate General has stated that it is incompatible with EU law to require a worker to take leave first before being able to establish whether they are entitled to be paid for it.
The Advocate General was influenced by European legislation which provides for workers’ entitlement to paid annual leave. In particular, the Working Time Directive provides that ‘Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks’. His view was that employers should provide ‘adequate facilities’ for workers to exercise this entitlement. Typically the adequate facility will be as straightforward as an employer including a specific contractual term setting out entitlement to paid annual leave. He stated that it would be inconsistent with the principles of the Working Time Directive to require workers to compel an employer to provide the ‘adequate facility’ and that there should be no such pre-conditions to the right to paid annual leave.
Where such adequate facility has not been made available to the a worker, the Advocate General’s view was that the worker should be able to claim holiday pay (for untaken leave as well as leave that had been taken on an unpaid basis) for the entire period for which adequate facility was not provided and should be able to carry it forward year on year. He considered whether there should be a limit on the carry over period but determined that a situation where the right to take paid leave has not been given at all can be distinguished from a situation where the employee was entitled to the leave but was unable to take it, for example because of long-term sickness absence (where case law has established that the period for which it can be carried over can be limited).
While an Opinion of the Advocate General is not binding on the CJEU, in practice their Opinions are often followed. If the CJEU follows his decision on this case, it could create significant exposure for businesses who engage workers and whose contractual terms with those workers do not include any provision for the right to paid annual leave.
Gig economy companies should clearly be concerned about this development, particularly when considering it alongside the recent decisions in cases focussing on employment status, as they could be exposed to claims from a significant proportion of their workforces for holiday pay dating back over a number of years. However, this issue is not limited to the gig economy; many other companies engage contractors on a self-employed basis but require their personal service and they could also face significant financial exposure if those individuals were to assert that they are workers and entitled to paid annual leave.
It is worth noting that once a company provides 'adequate facility' for exercising the right to paid annual leave, the worker then has the responsibility to take it. It is still legitimate for Member States to allow time restrictions on when that leave can be taken (for example, under the Working Time Regulations workers have to take the annual leave in the relevant holiday year). So, if a company includes the right to paid annual leave in its contractual terms with its workers, the worker then has to take that leave in the relevant holiday year and that entitlement will not roll forward year-on-year.
It would be prudent for businesses to carry out an analysis of their workforce to establish their potential liability for holiday pay and to consider whether a facility for the right to take paid annual leave should be introduced for those categories of individuals who are likely to benefit from worker status. The Advocate General emphasised the fact that the EU Charter of Fundamental Rights grants an unequivocal right to paid annual leave to every worker and there seems to be no deviation from the trend of protection of workers’ rights which has been seen in recent cases.