A recent opinion by the Advocate-General could if followed by the European Court of Justice (“ECJ”), impose huge financial burdens on businesses engaging staff on self-employed contracts in circumstances where they are in reality actually workers. 

In King v Sash Windows Workshop Ltd, the Advocate-General said that a worker who had wrongly been engaged on a self-employed basis was potentially entitled to be compensated for all holiday he had accumulated during his 13 years of service.

Background

Under the Working Time Regulations 1988 (“WTR’s”) all workers are entitled to 5.6 weeks paid leave per year (pro-rated for part-time staff).  Unless they are ill, workers must take their holiday in the holiday year in which it accrues and they cannot receive a payment in lieu of untaken statutory holiday unless their employment is being terminated.

Facts

Mr King worked as a commission based salesman for Sash Windows for 13 years.  He was offered a contract of employment after 7 years but turned this down and continued to work on a self-employed basis until he was dismissed when he reached the age of 65.  In order to bring a claim of age discrimination, he had to argue that he was a “worker” (rather than being self-employed) and, as a result, was also entitled to paid holiday. 

Mr King had taken short periods of unpaid holiday during his 13 years with the company.  He argued that he was entitled to receive payment for these amounting to £402, plus pay for all holiday that had accrued from the start of his employment which he had not been able to take because the company did not provide any pay during periods of leave.  Sash Windows agreed that if Mr King was a “worker” rather than being self-employed, he was entitled to receive a payment for accrued holiday pay in the current holiday year only, but not payments for previous years as these were time barred.

Mr King was initially successful at the Employment Tribunal.  However, Sash successfully appealed to the EAT who overturned the Tribunal’s original decision that Mr King could be compensated for all holiday he had accrued up to the leave year in which his employment terminated.  This amounted to £9,336.  Mr King appealed to the Court of Appeal.

Court of Appeal’s decision

The Court of Appeal could not determine the appeal without seeking clarification from the ECJ on whether paid leave can be carried over indefinitely in circumstances where a worker has not exercised his rights because his employer has not provided him with facilities to receive paid leave.  It also sought clarification on whether a worker has to actually take unpaid leave before they can establish whether they are entitled to be paid for it.

The ECJ heard the case earlier this year and its judgment is expected soon. 

The ECJ is supported by a number of Advocates General whose role is to consider the written and oral submissions to the Court in every case that raises a new point of law and deliver an impartial opinion to it.  Their opinions are not binding on the ECJ but are, in many cases, followed.

The Advocate General’s opinion

The A-G acknowledged that the right to paid holiday is a particularly important principle of social law, from which there can be no derogations.  Paid holiday is necessary to provide a break from work and to enjoy a period of leisure and relaxation.  It operates in the context of health and safety and is available to all workers including those engaged on casual contracts.

Employers have a responsibility to provide “adequate facilities” for workers to exercise this right.  This must include advising workers that they have the right to take paid holiday.  Under the Employment Rights Act 1996, employers are required to set out this information for employees within 2 months of starting work.  There is no corresponding legal duty on employers to provide similar information to “workers” who are not employees but most workers will be provided with a simple contract that includes information about their role, hours and pay and entitlement to take paid holiday.

The A-G found that Mr King did not know that he was entitled to paid annual leave and was entitled to be compensated for all untaken leave that had accrued during his work for Sash Windows.  However, the A-G left the question as to whether the offer of employment (and with it the right to paid holiday) made to Mr King part way through his employment, got Sash Windows over the hurdle of having to make “adequate facility” for taking leave.  If it did, then Mr King was only entitled to be compensated for untaken holiday up to that point.

The relevance of cases limiting carry over of holiday pay to sick workers

Regular readers of our employment updates will be aware of the series of ECJ and subsequent domestic cases that have found that individuals on sick leave can only carry over the first 20 days of untaken holiday for a period of 15/18 months from the end of the leave year in which they accrue.  In other words, they cannot accrue indefinitely.  [Please provide a link to our myth buster about sickness and holiday pay]

The A-G said that Mr King’s case could be distinguished from this line of cases because the sick workers had all been aware of their rights to receive paid holiday.  He also argued in the alternative that Mr King did not have any opportunity to exercise his rights to paid annual leave because he did not know the right to do so existed for people in his situation. 

Under these circumstances, the A-G said that the right will carry over until Mr King had the opportunity to exercise it (i.e. he became aware that he had the right to paid holiday and could then exercise that right).

Does the two year limitation on holiday pay claims limit the amount Mr King will receive?

Legislation introduced after the overtime holiday pay case of Wood and others v Hertel and Fulton and Bear Scotland, EAT, limited the length of time a Claimant could go back to claim unlawful deductions to two years.

However, if the ECJ follows this opinion, Sash Windows (and other employers facing similar claims) will not be able to limit their exposure to simply that two year period.  This is because Member States cannot impose limitations on the right to paid annual leave until a worker has been provided with adequate facilities to take it in the first place.  Adequate facilities will only be provided if employers notify their staff (including workers) of their rights to take paid holiday.

Does this apply to all holiday pay a worker is entitled to?

This point was not directly addressed by the A-G but it is likely that, in common with other ECJ decisions about holiday pay, it will only apply to the 20 days holiday in each holiday year required under the Working Time Directive and not the additional 8 days holiday provided under the WTR’s (i.e. the UK legislation).

Implications for other businesses

It is possible that the ECJ will reach a different decision.  However, if they do accept the principles of the A-G’s argument, businesses engaging individuals on self-employed contracts, in circumstances where they later turn out to be “workers”, will, potentially face huge financial liabilities for holiday pay (and also for underpayments in respect of the National Minimum Wage, as well underpayments in respect of PAYE and NI). 

Self employed contracts/agreements do not provide for paid leave because individuals who are genuinely self-employed have to plan and pay for their own holidays.

Uber have a “self-employed” workforce of over 40,000 in the UK.  Several of their drivers have already successfully claimed that they are workers (a decision that Uber are appealing) rather than self-employed.  Many more drivers (and indeed other gig workers) might be tempted to claim worker status if it opens the doors to holiday pay claims going back to the start of their engagements.