King v The Sash Window Workshop Ltd C-214/16

In this case, the ECJ had to decide whether a worker who had not taken holiday for a number of years because he would not be paid for it had the right to payment in lieu on termination of his employment.

The Charter of Fundamental Rights of the European Union says that every “worker has the right to… an annual period of paid leave”.

Article 7(1) of the EU’s Working Time Directive states that Member States must ensure that all workers are entitled to a minimum of four weeks’ paid annual leave, and Article 7(2) limits payments in lieu of annual leave to upon termination of employment. A series of cases have established that there is a limited right of carry-over where the worker was on sick leave, but it is for domestic law to place a time limit on this (the EAT has held that a maximum of 18 months after the end of the relevant holiday year is acceptable).

Regulation 13 of the Working Time Regulations gives UK workers the right to a minimum of four weeks’ annual leave, and Regulation 16 of the Regulations allows them to claim pay for holiday taken. (The additional right at Regulation 13A to another 1.6 weeks is not relevant to this case.) Because of the way the Working Time Regulations are structured, on the face of it this means that a worker must take the leave and then bring a claim for unlawful deduction of wages if they were not paid for it.

The case

The Claimant worked for the Respondent as a commission-only salesman for 13 years. He was not paid for holiday or sickness absence. (After nine years, he was offered a contract of employment which would entitle him to paid holiday, but he did not accept the contract and remained ‘self-employed’.) In total, he did not take approximately 24.14 weeks of holiday because it would be unpaid. He was dismissed in 2012 when he reached his 65th birthday and brought claims for age discrimination and unpaid holiday, claiming that he had either been too busy to take the holiday, or had not taken it before because it would be unpaid.

The Employment Tribunal held that he had been discriminated against because of age. It also held that he was entitled to holiday pay for:

  • leave accrued but untaken up to the date of termination in the current leave year;
  • for leave requested and taken in previous years; and
  • for leave accrued but untaken in previous years.

The Employment Appeal Tribunal upheld the Respondent’s appeal against the last category. The Tribunal had made no findings of fact that the Claimant had been prevented from taking annual leave for reasons beyond his control, and nor had he lost out financially (since he had worked throughout).

The Court of Appeal referred a number of questions to the ECJ:

  • Is Regulation 13 of the UK Working Time Regulations consistent with Article 7 of the EU’s Working Time Directive, since it requires that a worker takes unpaid leave before establishing whether they have a right to be paid for it?
  • If a worker does not take some of their entitlement to paid holiday because they will not be paid for it, can they say that they were prevented from exercising that right (in which case, the leave will carry over until the worker can take it)?
  • If the right does carry over, for how long?
  • If there is no statutory or contractual carry-over period, should there be in order to protect the purpose of Article 7?
  • And, if there should be such a carry-over period, is 18 months following the end of the holiday year in which the leave accrued compatible with Article 7?

Advocate General Tanchev’s non-binding Opinion supported the Claimant’s entitlement to carry over the leave. If a worker has not taken leave because they will not be paid for it, then the worker is entitled to say they have been prevented from exercising their right to paid holiday and the leave should carry-over until either they are allowed to take it, or their employment terminates.

The ECJ agreed.

The purpose of annual leave under the Directive is to provide a period of relaxation and leisure. It is clear from existing EU case law that a worker must be entitled to benefit from the remuneration to which he or she is entitled when taking annual leave. If a worker does not know whether he or she will be paid, this is likely to negatively affect the relaxation and leisure aspect of the leave, and the worker is likely to be dissuaded from taking holiday at all. Accordingly, the right to paid leave cannot depend upon the worker’s financial situation. EU law requires that the worker knows that he or she will be paid before the leave is taken, and any act or omission by the employer that prevents a worker taking their leave is unlawful.

A worker can carry over and accumulate untaken leave as in this case (as opposed to the situation where the employee is unable to take the leave because of sickness) until the end of the employment relationship. It does not lapse. It is different from the situation where a worker is off sick, because those cases balanced the protection of workers with the interests of employers, who might otherwise find that a worker accrues an unacceptably long period of leave.

However, in this case, there was no need to protect the employer’s interests, as the employer had no organisational difficulties if the Claimant took leave – in fact, it had benefitted. It was not relevant that the employer thought he was a self-employed individual not entitled to holiday pay. An employer who does not allow a worker to exercise their right to paid holiday must bear the consequences. Any legislation, such as the UK’s Deduction from Wages (Limitation) Regulations, which prevents workers from exercising their rights is also unlawful, certainly so far as it relates to EU law.

What to take away

This case has significant implications for the right to holiday pay in the UK. It suggests that workers who are wrongly classified as self-employed contractors may be able to claim back pay in respect of unpaid annual leave going back many years when their ‘worker’ status is established.

Remember that the decision applies only to the four weeks’ minimum paid holiday under Regulation 13 of the Working Time Regulations, and not to the additional 1.6 weeks’ leave under Regulation 13A.

The case suggests that the Deduction from Wages (Limitation) Regulations 2014, which limit back pay claims to two years, are incompatible with EU law. It also suggests that the three month “break in the chain” argument is also wrong for such cases.

Gig economy employers such as Uber and City Sprint have lost recent cases on self-employment status. The decision suggests that workers who have been wrongly classified as self-employed may be able to make claims for back holiday pay going back years, if the two year limit in the 2014 Regulations is unlawful.

We have not seen high numbers of claims for holiday pay, following Lock v British Gas and similar cases. This decision raises the value of such claims – coupled with the removal of tribunal fees earlier this year, will there now be an increase?