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In a new significant decision a worker must be able to carry over and accumulate unpaid holiday pay, rules the European Court of Justice (ECJ).

The Court of Justice of the European Union (CJEU) in the case of King v Sash Windows has held that a worker must be able to carry over and accumulate un-exercised rights to paid annual leave when an employer does not put that worker in a position in which he is able to exercise his right to paid annual leave. In this case, because the employer didn’t recognise the individual as an worker, and believed them to be ‘self employed’.

The long-running legal challenge concerned a claim brought by the salesman, identified as Mr King, against The Sash Window Workshop Limited. The dispute was over his contract, which did not specify if he was entitled to paid leave.

Conley King worked for The Sash Window Workshop from 1999-2012 as a commission-based salesman. After he was dismissed from the company, a UK tribunal ruled that he should have been classified as a worker rather than self-employed and, as such, was entitled to holiday pay for the 13 years he was with the company. The salesman had been paid entirely on commission and his contract described him as self-employed. A UK employment tribunal subsequently found he should have been treated as a full-time worker and thus entitled to 5.6 weeks’ paid annual leave. The employer argued that the Working Time Regulations 1998 provide that if paid holiday is not taken in a leave year, then it is lost.

The case is one of a series that have gone to the Luxembourg court to establish whether businesses operating in the “gig economy” are depriving employees of benefits to which they should be entitled by reclassifying workers as self-employed.

The CJEU, in an important judgment, disagreed.

It has held that if a worker is prevented from taking their paid holiday because the ’employer’ won’t grant the paid holiday, they are being prevented from exercising EU rights.

As such, they cannot be stopped from bringing a claim just because a new holiday year starts, and insofar as the UK Regulations say that the worker loses the right, they are incompatible with EU law and must be disregarded.

In its judgment on Wednesday morning, the ECJ said:

“A worker must be able to carry over and accumulate unexercised rights to paid annual leave when an employer does not put that worker in a position in which he is able to exercise his right to paid annual leave.

“The employer was able to benefit from the fact that Mr King did not interrupt his professional activity … It is for the employer to seek all information regarding his obligations in regard to paid annual leave.

“In the absence of any national statutory provision establishing a limit to the carry-over of leave in accordance with the requirements of EU law, to accept that the worker’s acquired entitlement to paid annual leave could be extinguished would amount to validating conduct by which an employer was unjustly enriched to the detriment of the purpose of that directive, which is that there should be due regard for workers’ health.”

More fundamentally, the CJEU held that an employer who fails to grant paid holiday to workers should not be entitled to the benefits of the normal limits on how much can be carried over (as set out in Plumb v Duncan Print). In fact, the backpay claim can go all the way back to 1996, when the original Working Time Directive came into force (the Working Time Regulations 1998 were implemented two years late).

The practical ramifications are that employers whose ‘self employed’ contractors turn out to be ‘workers’ (Uber, Pimlico Plumbers, CitySprint etc) may find themselves facing very substantial holiday pay bills, dating back 20 years. Since this ruling only applies to 4 weeks’ EU holiday (rather than all 5.6 weeks of UK holiday), the bill could be 20 years x 4 weeks = 80 weeks’ pay per worker.

There must also be very considerable doubt over whether the EAT’s decision in Bear Scotland v Fulton, which held that tribunals cannot award backpay for unpaid holiday leave beyond any 3 month break in unpaid EU holiday leave,  can survive this CJEU decision.

This may have significant implications for any ’employer’ who still believes that their self employed are self employed. Perhaps you are a childminder with a self employed assistant.  If you feel you may be in this situation please get advice.

If you need any assistance with any aspect of HR or employment law please contact us on 01527 909436