Anyone with 'worker' status can carry over paid annual leave, says employment tribunal
In the recent case of King v The Sash Window Workshop, the Court of Justice of the European Union (CJEU) held that anyone deemed to have 'worker' status must be able to carry over paid annual leave, even if they have not had the opportunity to take it.
This case concerns a challenge brought by Mr King, a salesman who was paid entirely on commission. His contract described his work status as 'self-employed' and did not specify if he was entitled to paid holiday leave.
Mr King took varying amounts of annual leave each year but was not paid whilst on holiday.
Mr King's engagement with The Sash Window Workshop was terminated in October 2012 upon him attaining the age of 65, and he subsequently brought a claim for pay for the holiday he had taken and pay in lieu of holiday which he had not taken throughout his 13 years of working for the company. Mr King further argued that the fact he was not paid for holiday meant he was deterred from taking his full entitlement.
The employment tribunal found Mr King should have been treated as a full-time worker. He was successful in his claims for age discrimination and holiday pay, including pay for holiday leave, for which no request for leave was made.
The tribunal widened the scope of the principle established in an earlier Court of Appeal decision, NHS Leeds v Larner, relating to holiday untaken because of long-term sick leave, to other situations "for reasons beyond his control", but unrelated to sickness.
The Sash Window Workshop challenged the tribunal award to make payment in lieu of the accrued but untaken leave throughout the whole period of Mr King's engagement, in respect of which no request for leave was made.
The matter was subsequently referred to the Court of Appeal, which referred the matter to the Advocate General of the CJEU for a preliminary ruling on the issues in dispute within the case. The matter was subsequently heard before the CJEU.
The main issue the CJEU was being asked to clarify was whether workers have the right to paid leave or merely the right to leave and pay for leave taken?
The relevant EU provision regulating paid annual leave is Article Seven of the Working Time Directive (WTD): the right to at least four weeks of "paid annual leave". This reiterates that the leave may not be replaced by a payment in lieu "except where the employment relationship is terminated".
The WTD was implemented in the UK by the Working Time Regulations (WTR) but the Article Seven right to paid leave was separated by the WTR into two regulations: Regulation 13, which confers the right to "leave"; and Regulation 16, which confers the right to "pay for leave".
Regulation 30 of the WTR distinguishes between claims where the worker is denied the right to time off and where the employer fails to pay for time taken off.
The effect of the WTR and the logic of the earlier decision of the tribunal is that, in order for a worker to establish the right to paid leave, they would first have to take unpaid leave and then, only after having done so, would they be able to test whether they are entitled to paid leave by way of bringing proceedings for unpaid wages.
The CJEU opined that workers are entitled to carryover paid annual holiday until the termination of employment in circumstances where they have not had the opportunity to take it.
The court further opined that requiring a worker to take annual leave before being able to ascertain if he will be paid for it would be incompatible with EU law. In finding that employers must provide "adequate facilities to workers" to enable them to take their paid annual leave, the CJEU found that putting the onus on employees would amount to requiring workers to take active steps to secure the creation of a facility for the exercise of the right to paid annual leave, which ultimately would be excessively difficult to enforce.
Furthermore, the CJEU ruled that in circumstances where an employer has not provided a worker with paid leave, the right to paid leave carries over until he has the opportunity to exercise it and on termination of employment the worker has the right to payment in lieu for any that remains outstanding.
The CJEU even went as far as to say that where UK regulations are incompatible with EU law, they must be disregarded. Employers who fail to give an opportunity for paid holiday should not be entitled to the benefits of the normal limits on how much can be carried over.
It is important to note that the King v The Sash Window Workshop decision only deals with situations where workers have not taken annual leave on the basis that they believe it will not be paid. The CJEU did not directly address cases where workers have taken leave but not been paid for it (or have been underpaid).
Therefore, the impact of this decision on the long-running cases of Bear Scotland etc regarding holiday pay is uncertain.
King v The Sash Window Workshop is a another example of a series of cases reaching the echelons of the European Court seeking clarification on whether businesses operating in the 'gig economy' are depriving employees of benefits to which they should be entitled, by reclassifying workers as self-employed.
This decision could have serious ramification. Employers should be wary and are advised to seek professional legal advice when reviewing the contractual provisions for annual leave within their employees' contracts.