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December 14, 2017

BUSINESS MATTERS: COMPANIES TO FACE POTENTIAL HOLIDAY PAY CLAIMS FOLLOWING RECENT ECJ DECISION

Kirsty Leeke of Greenaway Scott says there may be headaches ahead for companies following the recent ruling by the ECJ.

The European Court of Justice ("ECJ") has maintained the decision that staff are entitled to be paid on termination of employment for any periods of annual leave that they have accrued during employment, in circumstances where the worker was discouraged from taking that leave because it would have been unpaid. More surprisingly, there was no limit on the amount of leave that could be carried over in these sorts of cases.

As in the recent court case of The Sash Window Workshop Ltd ("SWW") and another v King. Mr King was considered by SWW to be self-employed for over 13 years. His 'employer', therefore did not provide any paid holiday during this 13 year period. An employment tribunal held Mr King was, in fact, an employee for this period and was therefore entitled to paid holiday. Mr King argued that he hadn’t taken his annual leave entitlement due to the fact it would have been unpaid.

The employment tribunal awarded Mr King holiday pay in respect of the following:

• untaken leave accrued in the final year of his ‘employment’;
• leave requested and taken as unpaid leave in previous years; and
• leave accrued but untaken in previous years.

SWW appealed this ruling but the employment tribunal held that if a worker has not taken annual leave because their employer refuses to pay them for it, the worker has effectively been prevented from exercising their right to paid leave. In this instance, the leave should be carried over until the worker has the opportunity to exercise that right, or until termination of employment.

The ECJ held that, where a worker has not exercised their right to paid holiday over several years because their employer wrongfully failed to provide holiday pay, the worker is permited to carry over their paid holiday rights until the termination of their employment. This ruling will have server implications for workers misclassified as independent contractors, potentially resulting in the right to years of unpaid holiday pay.

It may now fall to employers to pay large amounts to workers on termination of employment for unpaid holiday as well as the leave they have been discouraged from taking because it would have been unpaid. Even if employers start offering paid holiday moving forward, liability for the past untaken holiday still remains and would be payable on termination of employment.

The case will now return to the Court of Appeal which will have to decide whether the Working Time Regulations 1998 (“WTR”) can be interpreted consistently with the ECJ’s ruling. This ruling will only apply to the four weeks’ leave derived from the Working Time Directive, not the additional 1.6 weeks available under the WTR.

Despite this case providing some clarification regarding the accrual of holiday and payment on the termination of employment, it is very fact specific. This instance would only be applicable where workers have not taken annual leave because they have been led to believe it would be unpaid. It does not address the situation where workers have taken leave but haven't been paid or have even been underpaid for leave. It also omits whether the domestic limitation rules would continue to apply to claims for unpaid holiday pay (i.e. the two year limit in respect of claims for unpaid holidays).

The biggest impact of this decision is thought to be in cases where an individual has been wrongly considered to be self-employed for a long period of time, resulting in large back-payments of holiday pay on the termination of employment in relation to the duration of their employment. The application of this case has the potential to drastically increase the stakes in "gig economy" cases which are currently being heard.

 

This article was first published on Business Wales on the 14th December. 

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