In King v Sash Window Workshop Ltd and another, the European Court of Justice has ruled that workers should be paid on termination for any accrued untaken leave (with no limit on carry over periods) where they have been disincentivised from taking leave because they would not have been paid for it. The decision follows the opinion provided by Advocate General Tanchev which we covered in our June bulletin.

Under the UK Working Time Regulations (WTR), a worker can only bring a claim for holiday pay as a claim for unpaid wages after taking the leave. The Court of Appeal (following ECJ case law) held in NHS Leeds v Larner [2012] IRLR 825 that workers are entitled to carry forward leave from previous leave years when they have been unable or unwilling to take it because of sick leave. It also held that workers should be paid on termination for leave which has been carried forward in this way (that is because of sick leave.)

Mr King was a commission-only salesman for The Sash Window Workshop. During a period of 13 years he was not paid salary, holiday pay or sick pay. He was offered an employment contract which included paid holiday but he did not take up the offer. His contract was terminated when he turned 65. He brought claims for age discrimination and holiday pay. He argued that he had been discouraged from taking holiday because any leave taken was unpaid.

The employment tribunal found that he had been discriminated against on the ground of age. On the holiday pay claim, it found that Mr King was entitled to holiday pay for periods of annual leave which had been taken in the current and previous leave years (as a series of unlawful deductions from wages). It also found that Mr King was entitled to pay for accrued untaken holiday from the current leave year and from previous leave years.

The EAT did not agree on the basis that the tribunal had not established that Mr King had been prevented from taking annual leave by reasons beyond his control (as would be the case where a worker was unable to take holiday because he or she was on sick leave). On further appeal, the Court of Appeal referred a number of questions to the ECJ.

The ECJ held that a worker should not have to take unpaid leave before establishing an entitlement to be paid for that leave and that the WTR are incompatible with the European Working Time Directive by requiring a worker to take the leave before being able to claim the pay.

A worker who has not had the opportunity to take paid leave throughout his or her employment should be able to carry over the leave for the whole period of employment (until they have the opportunity to take paid leave). If employment ends before that opportunity arises, the worker should be paid for the accrued untaken leave on termination. The ECJ made clear that this is not the same as cases of long term sickness absence where limiting the period of carry over (for example to 18 months after the end of the relevant leave year) is reasonable to assist employers with the organisational difficulties presented by long term sickness. Employers who have not – 4 – afforded workers their proper right to paid leave should not have their interests protected in this way.

The Court of Appeal will now have to decide whether the WTR can be interpreted in line with this ECJ ruling. The decision relates only to the four weeks’ minimum holiday under the Working Time Directive and not to the additional 1.6 weeks’ under the WTR. It also deals only with payment for untaken leave on termination. However, this decision suggests that employers who have not made provision for paid holiday for workers and employees could face large payments for untaken leave on termination. The decision may throw into doubt whether the UK two year statutory back-stop on holiday pay claims is compatible with EU law.