At the end of 2017, the European Court of Justice in King v Sash Window Workshop Ltd handed down a landmark decision in relation to holiday pay. Here we revisit the basic principles that apply to holiday pay and explore the impact of this most recent decision.

Holiday pay basics

Almost all workers are legally entitled to 5.6 weeks paid holiday per year. This is known as statutory leave entitlement or annual leave. An employer is allowed include bank holidays as part of this statutory annual leave allowance.

In terms of pay, a week’s pay is worked out according to the kind of hours the individual works and how they are paid for the hours. This includes full time, part time and casual workers.

Fixed hours and fixed pay individuals

A week’s holiday pay = how much the worker gets for a week’s work

Shift work with fixed hours

A week’s holiday pay = the average number of weekly fixed hours the worker worked in the previous 12 weeks at their ‘average’ hourly rate

No fixed hours (casual workers)

A week’s holiday pay is the average pay a worker gets over the previous 12 weeks (when paid)

It is imperative that the average hourly rate is calculated accurately. Only the hours worked and how much was actually paid for them should be taken into account and an average calculated over the last 12 weeks. If no pay was paid in any week, the requirement is to count back a further week. The rate is then based on 12 weeks in which pay was paid.

A lesson in the law

Every worker is entitled to at least four weeks of paid annual leave which must be taken in the year it is due and payment in lieu of annual leave can only be made on termination.

If a worker takes annual leave and is not paid for it, this is then a claim for unlawful deduction from wages. This claim must be brought within three months of the last deduction or series of deductions, going back for a maximum of two years.

The right to paid annual leave distinction is reference to workers who have not taken annual leave because they believe that it will not be paid. This claim can be brought within three months after termination of the employment contract and is not limited to two years.

The King of all decisions

In King v Sash Window Workshop Ltd 2017, Mr King worked for The Sash Window Workshop Ltd as a commission-only salesman for 13 years. Mr King never received a salary, and was not paid for holidays or when he was off work sick.

After nine years, the employer offered Mr King an employment contract under which he would be entitled to paid annual leave. Mr King refused this proposition and continued working under the existing arrangement.

A few years later, the employer terminated Mr King’s contract when he reached 65 years of age. Aggrieved by the manner in which his engagement had come to an end, Mr King brought claims against the employer for age discrimination and unpaid holiday pay. The claim for holiday pay was argued on the basis that Mr King said he never took his annual leave for 13 years as he believed he would not have been paid.

The case was heard in the European Court of Justice (ECJ) and the Advocate General opined as follows.

If a worker never took any annual leave entitlement due to the belief that they would not be paid, the worker is entitled to claim that they have been prevented from exercising their right to paid leave. The Advocate General clarified that this right carries over every year until the worker has the opportunity to exercise it and will encompass the whole period of employment until termination.

It was said that an EU member state should only put a limit on the carry-over period of annual leave if the employer has provided an adequate facility for its employees to exercise their right to take paid annual leave. Interestingly in Mr King’s case, the UK courts may decide that the 2008 offer of employment contract amounted to an adequate facility to allow Mr King to exercise his right to paid leave.

ECJ judgment

The ECJ handed down its decision in favour of Mr King at the end of 2017 and the judgment went further than the Advocate General’s opinion. The Court held that if a worker was not paid for annual leave, it was contrary to the Working Time Directive 2003/88 (WTR) to require him to take unpaid leave first to establish his right to paid leave. It is also contrary to the (WTR) or to prevent a worker on termination from claiming a payment in lieu back to the very start of the employment relationship.

What does the judgment mean for employers?

This is a landmark decision as it will impact many workers wrongly categorised by their employers as self-employed. In theory, these individuals should now be able to bring a claim for all holiday pay they should have been paid for the duration of the working relationship when their employment terminates.

It is an eye-opener for employers and will encourage them to look more closely at the employment relationship they enjoy with individuals incentivising them to avoid paying holiday pay due to the risk of claims for accrued pay in the future which would be significantly higher and therefore costlier.