Just because a subcontractor is self employed, that does not mean that he, or she, is not entitled to claim paid holiday leave. The entitlement to such paid leave, or compensation in respect of accrued holiday entitlement, will depend upon whether the subcontractor is classified as a 'worker', that is, whether they are obliged to personally perform the work or not. The Employment Tribunal will look behind the words used in the contract itself to determine this entitlement.
What is the entitlement to paid annual leave?
The Working Time Regulations 1998 (the Regulations) were introduced on 1 October 1998 and provide that all workers are entitled to paid annual leave. Since 1 April 2009 this entitlement is for a period of 5.6 weeks. For someone working a five day week that therefore equates to 28 days paid leave per year.
In the absence of an agreement to the contrary, a holiday year is deemed to begin on 1 October each year. The Regulations do not provide for carry over of holiday and claims under the Regulations can only be made in respect of the relevant holiday year.
What's the definition of 'worker'?
A worker, as defined in the Regulations, is an individual performing personally work or services for the other party to the contract where the other party is not by virtue of the contract a client or customer of any profession or business undertaking carried on by the individual. The Regulation can therefore apply to many people who are technically self employed.
Redrow Homes (Yorkshire) Limited v Buckborough and Sewell
Back in 2004 the Court of Appeal in earlier claims against Redrow found that bricklayers working for Redrow were workers for the purposes of the Regulations. The decision that those individuals were workers was not altogether surprising given the body of case law preceding the decision.
As a result of these decisions Redrow went back to the drawing board and redrafted its subcontractor terms and conditions in an effort to avoid worker status attaching to subcontractors. One of the additions to the documentation was a clause providing the subcontractor with the right to substitute themselves with an alternative worker, so there was no requirement to provide services personally.
Unfortunately for Redrow, two bricklayers, Buckborough and Sewell, who had worked as self-employed building workers for Redrow between March 2006 - January 2007 on the new terms and conditions, chose to pursue claims for paid holiday.
Both had signed a "Subcontract for a labour only bricklayer: Conditions and Acceptance of Offer" which stated that the contractor was self employed and provided for a substitution clause stating that the "obligation to perform the work is not personal to the contractor".
The subcontractors succeeded in persuading the Employment Tribunal that at the time the contract was signed neither side intended that Buckborough or Sewell would provide a substitute or refuse work offered by Redrow. The Employment Tribunal concluded that the amended wording in the subcontractor agreement (the delegation or substitution clause) was therefore a sham, that the subcontractors were obliged to provide personal services and that they were very fairly and squarely within the definition of worker contained in the Regulations.
Although Redrow appealed the decision of the Employment Tribunal, that appeal failed.
So where does this leave businesses relying on similar clauses? Unless the substitution clause can be shown not to be a sham, subcontractors are likely to be entitled to paid holiday. This decision may well open the floodgates to thousands of other construction workers claiming holiday pay which could cost the construction industry a substantial sum of money at a time when many construction companies are least able to afford such payments.
Confirmation from the House of Lords is also awaited as to whether holiday pay claims can be 'leapfrogged' back to the start of the contract (rather than just the particular holiday year), and holiday pay claimed on the basis that the non-payment of holiday pay throughout the lifetime of the contract amounts to an unlawful deduction of wages. Theoretically therefore a claim could, on this basis, extend back to 1 October 1998 when the Regulations were introduced. The effect of such confirmation, if received, will be substantial.
Given the potential financial consequences, companies would do well to review existing subcontractor agreements, assess the effectiveness of any substitution clause and perhaps make provision for potential holiday pay claims.