King v The Sash Window Workshop Ltd and another (European Court of Justice)

The ECJ has ruled that workers, who are wrongly classified as self-employed contractors and therefore do not utilise their statutory entitlement to paid holiday, should be able to obtain backdated holiday pay in respect of the entire duration of their engagement by an employer.

In this case, the claimant worked as a commission-based salesperson for 13 years. He received no salary and was never paid for holidays or sickness absences. He was offered a contract of employment after seven years, but chose to continue to work on a self-employed basis. When the company terminated his contract, he brought claims for age discrimination and unpaid holiday pay.

The claimant established 'worker' status before an Employment Tribunal, but the extent to which the company had to cover historic, unpaid holiday pay liabilities remained contentious. The Court of Appeal (CA) subsequently referred the question of whether national carry-over limits on holiday entitlement are compliant with EU law to the ECJ.

The ECJ held that where a worker does not exercise their right to paid holiday (whether due to employer misclassification or other reasons beyond their control), EU law requires that accrued, but untaken, leave carries over until the termination of their employment. The decision is inconsistent with previous UK rulings which had said employers could impose a two-year 'backstop' to limit a worker's right to backdated holiday pay.

This is another decision with potentially huge implications for the 'gig economy', and serves as another wake-up call for organisations who may have erroneously classified individuals as self-employed contractors rather than 'workers' at the outset of their relationship. It is irrelevant whether an employer genuinely believes an individual is not entitled to paid leave, since the onus falls on them to correctly classify their staff. Whilst we need to wait for the CA's response, the ECJ's prohibition on holiday pay backstops could encourage substantial claims for historic holiday pay, and significant liabilities for companies engaging independent contractors.

Our more detailed comments on the decision can be found here.