We look at the decision of the European Court of Justice (ECJ) in King v The Sash Window Workshop Ltd and another C-214/16, the latest important case on holiday pay. This case focuses on whether a worker who had been treated as self-employed and had not been given paid holiday could claim holiday pay over a period of 13 years. The European Court of Justice decided that the worker was entitled to back pay for holiday for the whole period of his employment.

Typically, the UK approach to holiday pay under the Working Time Regulations 1998 (WTR) has been that a worker must actually take holiday or have a request for holiday refused in order to have a right to receive holiday pay. However, that approach has now been challenged by the ECJ.

Mr King was engaged by The Sash Window Workshop Ltd (SWW) on what was described as a 'self-employed commission-only' contract from 1 June 1999 until his retirement on 6 October 2012. When Mr King took annual leave he was not paid in respect of such leave.

After his contract terminated, Mr King sought holiday pay both in respect of the annual leave he had taken but had not been paid for and also in respect of further annual leave that he had chosen not to take. SWW rejected his claim. However, he brought an employment tribunal (ET) claim and the ET decided that Mr King was a worker, meaning that the right to annual leave applied.

Following a number of appeals by both sides (the details of which are not relevant to this briefing) the case ended up in the Court of Appeal. By that stage it was common ground that Mr King was a worker and would be entitled to pay in respect of:

1. Annual leave he had taken but in respect of which he had not been paid; and 2. Annual leave he had accrued but had not taken during his final year of engagement.

The more interesting (and legally novel) question was whether he was entitled to be paid in respect of annual leave entitlement that he had chosen not to take for the whole period of his engagement dating back to 1999.

Under express wording in the WTR there is no right to carry over annual leave. Claims for holiday pay must be brought within three months of the date on which a worker alleges that he/she should have been paid. SWW therefore alleged that Mr King was out of time to bring claims in respect of leave from previous leave years.

In contrast, Mr King alleged that the reason he had not taken annual leave was that he would not have been paid for it and claimed that, under previous ECJ case law, he should have been entitled to carry over his leave from one leave year to the next and to be paid in lieu of all carried over annual leave on termination.

If Mr King had been prevented from taking annual leave by reason of sick leave then the position under EU law was clear: he would be entitled to carry over the leave, although there has been a suggestion in case law that the carry over period would be limited and that accrued but untaken holiday would be lost at the end of that period. However, the Court of Appeal considered that there was no ECJ guidance on whether a worker could carry over leave where the reason he had not taken such leave was that he knew it would be unpaid. It therefore referred the case to the ECJ.

The ECJ's decision – right to holiday pay

The ECJ considered its previous holiday pay case law and, as with previous ECJ case law, highlighted the purpose of paid annual leave as being to enable a worker to enjoy a period of relaxation and leisure. It noted that it would be difficult for a worker to have relaxation and leisure if there was uncertainty as to whether he would receive pay for leave. The ECJ also considered that anything that might dissuade a worker from taking annual leave would be contrary to the Working Time Directive.

The ECJ concluded that, if the effect of the WTR was that a worker had to take unpaid leave in order to be entitled to claim pay for such leave, then a worker in Mr King's position would be deprived of a remedy. Accordingly, it decided that, if the WTR's effect was that Mr King would have to have taken unpaid annual leave in order to claim holiday pay in respect of his leave entitlement, then the WTR were contrary to EU law. In other words, the usual position under UK law that a worker has to actually take holiday (or make a request for holiday that is denied) before he/she can claim for pay does not comply with EU law.

ECJ's decision – carry over

The ECJ then turned to the issue of whether Mr King could carry-over leave throughout his engagement with SWW. It considered that Mr King had been prevented from taking paid annual leave for reasons beyond his control (namely the fact that he would not receive any pay if he took his leave).

In cases involving workers who were unable to take paid annual leave due to sick leave, the ECJ had previously ruled that member states were not prevented from having a limit on the period for which leave could be carried over. For example, a limit of 15 months after the end of a leave year had been held to be compatible with the Working Time Directive.

Given the above, the ECJ had to consider whether a similar limit could be lawful in Mr King's circumstances. It concluded that sick leave cases were a different matter and that an employer who simply did not allow a worker to exercise his right to paid annual leave must bear the consequences of that refusal. Accordingly, any provision of UK law restricting or preventing the carry-over of accrued but untaken leave in Mr King's circumstances would be contrary to EU law.

The case will now return to the Court of Appeal for it to decide whether the WTR can be interpreted to give effect to the ECJ's decision.

There is a slim possibility that the UK courts and tribunals could decide that the WTR cannot be interpreted to give effect to the ECJ's decision and that the Government will need to legislate to bring UK law into line with the ECJ's decision. However, this is unlikely and the UK tribunals have typically considered that they can read words into the WTR to give effect to ECJ holiday pay decisions. However, it does throw into doubt the two year statutory limit on workers claiming back pay under the WTR, which may be contrary to EU law if it does not give workers an effective remedy, as well as the ruling that a three month gap between unpaid or underpaid holiday breaks a series of deductions.

This case will be of most relevance to employers in the gig economy who treat their contractors as self-employed and do not give them annual leave rights. As many HR professionals will be aware, there have been a series of gig economy cases where people treated as self-employed have been deemed to have worker status. Any such workers would be entitled to paid annual leave and, provided that this case is followed by the UK tribunals, they may be able to recover holiday pay for the whole duration of their working relationship.

The case is, however, also likely to be of interest to any employers who use notionally self-employed contractors with risky employment status. We often see such relationships that are indistinguishable from employee/worker relationships when you examine how they actually operate in practice. If such contractors were prepared to risk a finding that they were not self-employed for tax purposes then they could bring holiday pay claims going back a number of years relying on the King decision.

There are, however, some potential limitations to the decision. In principle, it should only apply to the minimum of four weeks' paid annual leave granted by the Working Time Directive and not the 1.6 weeks additional leave that is granted by the WTR. In addition, although workers can potentially claim for holiday pay dating back to the start of their engagement, there will be a cut-off date of 23 November 1996 (the date by which the Working Time Directive should have been implemented).

Additionally, it should not affect the position of workers who are claiming they were unable to take holiday due to sick leave (and presumably also family leave). We have seen cases in which ETs are willing to apply a limited carry-over period in sick leave cases and would not expect this case to change that approach.

Lastly, employers should be aware that trade unions are becoming more active in this area and are writing to employers requesting meetings to discuss their approach to holiday pay. If you receive such a letter or have any queries regarding the calculation or payment of holiday pay, please get in touch with your usual Womble Bond Dickinson contact.