There has been yet another complicated and potentially far reaching decision in the never ending saga of holiday pay. In King v The Sash Window Workshop Ltd, the European Court of Justice (“ECJ”) has held that where an employer has failed to give a worker the right to paid holiday, the worker may carry over and accumulate untaken leave until the end of their engagement, when they can claim a payment in lieu of the entire amount.
The ECJ found that the UK’s Working Time Regulations are incompatible with EU law in failing to give an effective remedy to workers in these circumstances. This decision may have significant consequences in the gig economy and it could potentially impact all employers.
Mr King had worked for Sash Windows for 13 years as a self-employed commission only salesman. He was never paid for holidays. After nine years, Sash Windows offered Mr King an employment contract, with the right to paid holiday. He refused this offer and continued to work as before on a self-employed basis. On the termination of his engagement, Mr King brought a claim for payment in lieu of accrued but untaken holiday. The case went to the Court of Appeal who referred it to the ECJ.
The ECJ has once again reiterated how sacrosanct the right to paid annual leave is under EU law and that it should not be interpreted restrictively. The ECJ held that UK law leaves workers like Mr King with no effective remedy. This is because, under the Working Time Regulations, where the employer gives no right to paid holiday, the worker would first have to take holiday without pay in order to bring a claim for payment for it.
The ECJ held that where a worker is prevented from exercising the right to take holiday they can carry over the right to paid holiday from one holiday year to the next. The UK Working Time Regulations which provides that holiday is lost if not taken within the relevant leave year is therefore incompatible with EU law.
The ECJ went on to consider if there were any limits on the carry over. For example, workers on long term sick leave are entitled to carry over holiday from one year to another where they are unable to take it due to their illness. However, in such circumstances, workers can only carry over holiday for up to 18 months after the end of the relevant holiday year. This is partly justified on the basis that employers should not be subject to workers accumulating huge periods of holiday in these circumstances. The ECJ said that the same could not be said where an employer has failed to give workers the right to paid holiday and that no such limitation on carry over should apply.
The ECJ specifically said that “an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences”. It also held that it was irrelevant that the employer in this case considered that the worker was not entitled to holiday as he was treated as self-employed.
In summary, the ECJ found that where a worker has not taken holiday because his employer refused to pay for holiday, the worker could carry over and accumulate the right to paid holiday until the termination of his engagement. On termination, the worker would be entitled to a payment in lieu of all this accrued untaken holiday.
This case has major implications for employers in the gig economy and for other employers who have misclassified staff as self-employed rather than as workers. Where such employers do not provide the right to paid holiday, they are at serious risk of claims on termination for holiday pay going back to the commencement of service. This case could lead to many more claims from gig economy workers based on their employment status given the potentially lucrative claims for unpaid holiday.
There has been some commentary that this case may have wider implications as it also calls into question the legitimacy of:
(a) the Deduction from Wages (Limitation) Regulations 2014 which limits claims for unlawful deduction from wages to two years’ back pay; and
(b) the recent decisions that a break of 3 months between instances of unpaid or underpaid holiday breaks the chain of unlawful deductions.
Although it is correct that this case gives some support to the suggestion that any limitations on paid statutory holiday could be invalid, this case focused on a different point of law. This case was about payment in lieu of accrued untaken holiday on termination of engagement where holiday has not been taken. The two year limit and the three month break rules apply to unlawful deduction claims where a worker is claiming payment for underpaid holiday that he has actually taken. We will need to wait to see if the UK limits on unlawful deductions claims are themselves challenged in light of this case.