The right to take paid holiday has been at the centre of several recent high profile cases regarding employment status.

Taxi drivers, plumbers and couriers have all successfully argued that despite being labelled ‘self-employed’ they had employment rights, since they also fell within the statutory definition of being a ‘worker’.

Today in the case of King v The Sash Window Workshop Ltd Case C‑214/16 the European Court of Justice (ECJ) has handed down its judgment which could have the biggest impact yet, as it signals that businesses found guilty of mistakenly denying holiday pay rights to the self-employed worker will be liable to pay much higher compensation than had previously been thought possible.

Under the EU’s Working Time Directive, workers have a right to four weeks paid annual leave. In the UK this is implemented by the Working Time Regulations 1998 (WTR). The right to take this leave has already led to multiple claims in UK courts and tribunals. To a large extent, these have successfully challenged the holiday provisions in the WTR that placed limits on a worker’s entitlement to holiday pay. In effect, the judges hearing the cases have had to re-write the provisions that were incompatible with the EU Working Time Directive.

This has meant that in respect of the four weeks of EU leave, the prohibition on carry-over from one year to the next has been rewritten to provide that a worker may carry forward their accrued but untaken leave for a period of up 18 months, if they were absent due to sickness. Furthermore, provisions that defined holiday pay as being just basic wages have had to be disregarded so that holiday pay will be calculated to include any overtime, allowance or commission that would form part of normal pay. However, this latest judgment could have far reaching consequences.

Mr King was self-employed and worked on a commission-only basis for Sash Windows from June 1999 until 6 October 2012. Unsurprisingly, being ‘self-employed’ meant Mr King was never paid for holidays or sickness absence. However, when he was retired Mr King brought claims for accrued but untaken holiday, together with pay for holidays he had taken each year throughout his 13 year engagement.

The Employment Tribunal’s original decision that his claim for holiday monies succeeded was appealed on a number of grounds. One of the key issues was whether he should be allowed to carry forward holiday entitlement from one year to the next where he had not been prevented from taking it due to sickness. Another issue was when he had taken leave and how entitlement to holiday pay should be calculated if he had continued working and been in receipt of full pay. The Court of Appeal referred the case to the ECJ.

The ECJ has held that where workers are not provided with a right to take paid annual leave, they have a right to compensation without having to show that they have taken unpaid leave and this right continues to accrue until the end of their engagement, or to the point they are provided with a facility for leave to be taken.

This places a business at a much greater risk, as where a claim is made at the termination of a contract in which the individual was labelled as ‘self-employed’, the entire amount of holiday pay that accrued throughout the period that they were engaged could be claimed i.e. four weeks’ pay for each year of the contract.

The financial impact on any business that relies on self-employed contractors could be huge. Whilst it has been known for some time that a contractor may fall within the definition of also being a ‘worker’, claims for losses in respect of statutory rights that would apply have been limited.

Current UK legislation limits recovery of sums due from an employer in respect of holiday pay to a maximum of two years back-pay, plus there is a further rule that prevents any sum being claimed as part of a series of deductions if there is a gap of more than three months.

These restrictions on recovery of monies for holiday pay due could all now be the subject of challenge on the grounds that they are in conflict with the EU Working Time Directive, where a contractor has never been given a right to take paid leave. If they are found to be incompatible, the limitation will be overridden and compensation awarded. As the terms and conditions on which the contractor is engaged will not usually contain provision regarding holiday pay, then it looks likely that compensation could be backdated to the first date that the contractor was engaged, or from October 1998 when the statutory right to paid holiday was first introduced.