Following a recent high-profile decision on gig economy workers, some employers may be considering whether, in reality, their independent contractors attract worker status, and the associated rights applicable to that status. Those who are deemed to be workers are entitled to a range of rights, including a right to paid time off work.

In view of this finding, can workers who have been engaged for many years claim substantial arrears of holiday pay? In Smith v. Pimlico Plumbers, the Employment Appeal Tribunal (EAT) considered this question and decided that workers who have taken (unpaid) leave cannot benefit from the rules that allow those who have been deterred from taking holidays to carry forward their holiday entitlement, so enabling them to seek payment of the arrears when their engagement ends.

Background

The Claimant worked as a plumbing and heating engineer for Pimlico Plumbers Limited. His contract stated he was a self-employed independent contractor with no right to paid holiday. The Claimant took periods of unpaid holiday instead. Months after his contract terminated, he submitted a claim in the Employment Tribunal for holiday pay.

Was the Claimant entitled to paid holiday? Yes. In a landmark case, the Supreme Court unanimously decided that the Claimant was a worker despite what his contract stated. Therefore, as a worker, the Claimant was entitled to paid annual leave.

Could the Claimant claim holiday pay from his former employer long after taking the holidays? No. The Employment Tribunal decided that the Claimant was prevented from doing so because he brought the claim after the statutory time limit had expired. The Claimant appealed, arguing that an EU law case – King v. Sash Window Workshop Ltd (King) – directs that a worker who is denied the right to paid holidays is entitled to carry over that right indefinitely and to receive a payment in lieu of accrued but untaken annual leave upon termination of the contract.

The decision of the Employment Appeal Tribunal

The EAT dismissed the Claimant's appeal. It distinguished King by deciding that King only concerned cases where workers did not take some or all of their leave entitlement because they were deterred by the fact that it would be unpaid. The ability to carry over paid leave was intended to remedy a situation where workers were effectively prevented from taking annual leave because they would lose out financially.

The EAT held that the King decision does not entitle workers who do in fact take leave, albeit unpaid, to carry over the right to paid leave. As such workers have taken the leave, they are not deterred from doing so and do not benefit from the extended carry-over that is granted to those who are deterred. Instead, the remedy of a worker who takes the unpaid leave is to seek payment at the time of the holiday or within the three-month statutory time limit following that holiday.

In this case, the Claimant had taken unpaid leave and therefore, in the EAT's view, the principle arising from King did not apply. The Claimant was not permitted to claim payment for leave that he had taken a long time previously after his engagement as a worker ended.

What are the practical implications of this decision?

Companies that engage contractors who may (in reality) attract worker status are likely to welcome this decision, particularly having regard to other recent developments on worker status in the gig economy. Allowing workers to carry over paid leave or the right to payment, even where the worker took that leave, could have resulted in employers having to process significant back pay. This decision therefore limits employers' potential liability in relation to past unpaid leave taken by workers.

Where are we with holiday pay?

Where workers have already taken unpaid leave:

  • They can still claim for holiday pay within three months of the date on which they should have been paid for the holiday.
  • If there have been a series of unpaid holidays, the worker may be able to claim for up to two years' holidays if the claim is made within three months of the date of the last of those holidays. However, subject to a forthcoming appeal, this only works if the gap between the holidays is no more than three months.
  • Workers might be able to claim for holiday pay outside this timeframe if it was not reasonably practicable for them to bring the claim on time. However, the EAT's comments suggest that this bar is high. In this case, the Claimant was unaware of his worker status, but the EAT reasoned that he could have looked into his rights and brought the claim on time. In reaching a decision on allowing a late claim, Tribunals may consider factors such as the worker's intelligence and the resources available to him or her. However, it appears that not knowing one's legal rights is unlikely to be a sufficient excuse for missing the deadline.
  • Notwithstanding the above, the EAT accepts the possibility that an employer's active deception could mean it is not reasonably practicable for a worker to bring their claim on time. In such cases, the worker may be able to claim holiday pay beyond the three-month time limit.

Where workers do not take some or all of their statutory leave because they believe it will be unpaid, the untaken leave may be carried over into new holiday years and employers may need to pay the arrears on termination of the worker's contract. In such cases:

  • The time constraint of having to bring a claim within three months from the point of the unlawful deduction does not apply.
  • While the workers must have been deterred from taking the time off because they believe they would not be paid for it, this is unlikely to be a major hurdle for workers. If the employer does not pay for leave, a tribunal may readily presume that this had a deterrent effect. The burden will likely be on the employer to show that the lack of pay was not a deterrent.

As the COVID-19 restrictions ease and excitement grows for the summer holiday season, this decision is a timely reminder of where workers stand on holiday pay.