Employment law update: Latest holiday decision from the European Court of Justice
The ECJ handed down its judgment this week in King v Sash Windows Workshop Ltd which raises issues around self-employed contractors and the right to paid annual leave.
The ECJ has confirmed that where an employer has denied a worker the right to take paid holiday, there is no limitation to the backdating period in respect of a claim under the Working Time Regulations (WTR). This means that a claim for holiday pay under the WTR can be carried over each year throughout the duration of the worker’s employment.
Mr King was a self-employed contractor working on a commission only basis. He had taken holiday over the course of his contract but had not been paid for it. He retired after 13 years and brought a claim, arguing that he was in fact a worker and was, therefore, entitled to holiday pay for the full duration of his contract.
The claim went to the Employment Tribunal, which heard evidence as to the nature of the relationship and determined that Mr King was a worker. The question as to how much holiday pay he should receive, and in particular the period of time for which he could claim it then went to the Employment Appeal Tribunal and the Court of Appeal before it was referred to the ECJ.
The ECJ decided that a claim for unpaid holiday can be brought regardless of whether the holiday has in fact been taken by the worker. It also held that where an employer has refused to allow a worker to take paid annual leave, the right to that leave carries over indefinitely. In this case, Mr King was entitled to recover accrued holiday pay for the full 13 years, up to the point that he retired.
The ECJ distinguished this case from a situation where an employer permits paid holiday but the worker is unable to take it, for example because of sickness. In a sickness absence case, the ECJ had previously considered not only the protection of workers but also the protection of employers, because the accumulation of excessive holiday can make workforce organisation difficult. In that case the ECJ limited carry over to 15 months, and in England and Wales carry over has been limited by case law to 18 months.
In this King case, the ECJ noted that there were no such organisational difficulties and it was simply the employer’s decision that Mr King was not entitled to paid holiday. The ECJ concluded that the employer should therefore bear the consequences.
It is important to note that claims under this judgment will be limited to the 20 days of annual leave under the Working Time Directive.
What to take away
The ECJ’s decision in King highlights the particular risk that can arise in cases where the employment status of an individual contractor is not clear. In the context of a number of recent high-profile decisions on employment status, this decision demonstrates the importance of employers having in place clear documentation and processes for the engagement of contractors.
Employers may wish to look more closely at their self-employed contractors and consider the risks that they are in fact workers. It is likely to be something which contractors in the public sector are already alive to following the change to IR35 rules this year, where more self-employed contractors are taxed as if they are employees. They may now take the view that if they are to be taxed as an employee, they should receive some of the benefits which accompany this status.
For further information on the implications of this case please contact Rachel Luddem, Bridget Prosser or Andrew Uttley.