Self-employed “worker” entitled to 13 years’ backdated holiday pay for untaken leave

The European Court of Justice (ECJ) has ruled in the case of King v Sash Windows & another that a “self-employed” salesman who established worker status is able to claim holiday pay for leave he was entitled to but had not taken or had not been paid for over the entirety of his 13 year engagement.

Mr King was a self-employed commission-only salesman, according to his contract, for Sash Windows from 1999. The contract contained no provision for paid holiday. When his contract was terminated on his 65^th birthday in 2012, he successfully brought claims for age discrimination and unpaid holiday pay on the basis of being a “worker”.

There are three distinct types of status in employment law: employee, “worker”, or self-employed. Workers have additional rights to the self-employed, including the right to be paid the National Living Wage, rest breaks, working time limits, auto-enrolment into a workplace pension, and the right to paid holiday.

In the ensuing appeals, Mr King’s “worker” status was accepted. However, he asserted that not only was he entitled to pay for holiday he took, but also to backdated holiday pay for holiday he had not taken because he thought it would be unpaid. Sash Windows argued that untaken holiday over the years had been lost, and that, unlike an employee absent on sick leave, Mr King had had the opportunity to take holiday but had not taken it.

The decision

The ECJ ruled that where there is a dispute between a worker and an employer as to whether he is entitled to paid leave, the worker does not have to take unpaid leave before claiming he should have been paid for it. This means that workers can make claims for holiday pay for both taken unpaid leave and for leave they did not take because they thought it would be unpaid.

The case was distinguished from circumstances where a worker has been unable to take leave due to sickness, where the carryover of untaken leave can be limited to a certain period of time. The ECJ considered that employers should not be able to benefit from their failure to allow a worker to exercise his right to paid leave: therefore there was no limitation period on Mr King’s claims for untaken leave.

Why is the case important?

As a number of gig economy cases continue to make their way through the courts, this case highlights that employers must be crystal clear on the employment status of staff.

Employers should note the comment in the judgment:

“…even if it were proved, the fact that Sash WW considered, wrongly, that Mr King was not entitled to paid annual leave is irrelevant. Indeed, it is for the employer to seek all information regarding his obligations in that regard.”

This emphasises that regardless of what the parties have said or agreed regarding self-employment, the onus is on the employer to work out what the true status is and therefore what rights the individual does or does not have. Prior to the ECJ ruling, the Advocate-General’s Opinion given earlier this year noted that employers rather than workers are to take all the necessary steps to determine whether they are bound to create an adequate facility for holiday – through legal advice, union consultation, and consultation with Government bodies.

Determining whether an individual is a worker or is genuinely in business on their own account is sometimes hard to determine, since it depends on the circumstances of each case and a body of case law which has developed over many years. It is ultimately a question for an Employment Tribunal to decide, but most employers will want to be able to determine status without going that far. On 22 November 2017, in the Budget papers it was announced that the Government would publish an Employment status discussion paper as part of the response to Matthew Taylor’s review of employment practices in the modern economy, exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer. The Government stated that this is an important and complex issue, and so it would “work with stakeholders to ensure that any potential changes are considered carefully”.  This is likely to become even more important for employers who until now may have turned a blind eye to the status of individuals who are asked to – or may have themselves wanted to – be categorised as “self-employed”.

Those with worker status must be given adequate opportunity to take their statutory entitlement to paid holiday. This is likely to be a provision in contracts or similar documents. Employers which rely on a belief that an individual is “self-employed” without examining the true status could leave themselves open to claims for holiday pay going back several years.

Key points

• The onus is on employers to ascertain the true employment status of their staff;
• Unless an individual is genuinely in business on his own account, he or she may be a “worker” entitled to paid holiday under the Working Time Regulations 1998;
• If employers do not proactively provide arrangements for paid holiday to be taken by “workers”, they could face backdated holiday pay claims when the engagement ends;
• Such claims could go back many years, and the importance of clearly establishing the employment law status of all staff should not be underestimated.

For more information or advice please get in touch with our employment team.