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Rethinking Holiday Pay for ‘Workers’- King v Sash Windows

It may not be hitting the headlines in the same way as the Uber case, but a recent CJEU decision, in the long running King v Sash Windows case, has big implications for ‘workers’ and their employers.

Holiday Pay under the Working Time regulations – workers’ entitlement

Although ‘workers’ do not have the same protections as employees under UK employment law, they are entitled to some of the same rights, for example in respect of working time. The European ‘Working Time Directive’ provides that every worker should have a minimum of 4 weeks’ paid leave. This is transposed into UK law by the Working Time Regulations. Regulations 13 and 16 of the Working Time Regulations read together, provide entitlement to 4 weeks’ paid annual leave, provided that leave is taken in the holiday year to which it relates. Leave cannot be replaced with a payment in lieu (Regulation 13(9)(a)) unless the employment is terminated (Regulation 13(9)(b)). This reflects the ‘health and safety’ rationale for the Working Time rules, both at EU and domestic level – to ensure that workers get sufficient rest. Workers can complain to an employment tribunal if their employer refuses a leave request, or doesn’t pay the worker for leave that he has taken (Regulation 30), subject to the usual three month time limit, which may be extended in rare cases.

The facts in King v Sash Windows

Mr King worked on a ‘commission only’ basis for Sash Windows for 13 years. When he did take time off, it was unpaid. When he retired in 2012, Mr King argued that he should be paid for the unpaid holiday that he did take, as well as for holiday that he did not take during the period of his commission only contract. Although Sash Windows claimed he was self-employed, the Employment Tribunal agreed that Mr King was a worker. As such he was entitled to

  • Holiday that accrued in his final leave year
  • Pay for holiday that he took between 1999 and 2012 but was unpaid
  • Holiday that accrued but he did not take between 1999 and 2012, amounting to 24.15 weeks

Sash Windows appealed to the EAT which allowed the appeal and remitted the matter back to the ET. This decision was then appealed and cross-appealed, culminating in a Court of Appeal hearing, which in turn, referred the matter to the CJEU.

The reference to the Court of Justice of the European Union

During the course of the appeal and cross-appeal to the Court of Appeal, the parties reached agreement that Mr King was a worker, and was entitled to the first 2 types of holiday referred to above – i.e. holiday that accrued in the final leave year, and holiday that he took on an unpaid basis throughout his entire contract. The dispute before the CJEU, centred on the 24.15 weeks holiday that technically accrued throughout the contract, but which Mr King didn’t take. Sash Windows argued that because he could not carry over leave from one leave year to the next (Regulation 13(9)(a)) and because he did not bring a claim under Reg 30 within 3 months of the end of each leave year, he was time-barred in relation to this 24.15 weeks. Mr King argued that the right to payment in lieu does not accrue until the employment relationship terminates, so he was in time to bring a claim in respect of every leave year since 1999. Previous case law has determined the question of carry over from one leave year to the next under the Working Time Regulations, only in cases of sickness absence – in other words, where a sick employee is unable to take annual leave that may straddle two leave years. Never before has a case like Mr King’s come before the Court. It is for this reason, that the Court of Appeal referred a number of questions to the CJEU asking:

  • Whether a worker had to have taken a period of leave to establish his entitlement to be paid for it
  • If a worker does not take all of his leave because the employer will not pay him for it, does this amount the employer ‘preventing’ the worker from taking paid leave, so that leave can be carried over into the next leave year
  • whether the right to paid leave in these circumstances carry over indefinitely, or do the limitations which apply in a sickness situation apply?
  • Should the court impose a limit on the right to carry over to prevent a distortion of the Directive
  • If so, is 18 months from the end of the leave year concerned, compatible with the provisions of the Directive.

What has the CJEU decided?

Looking at the first question, the CJEU ruled that the Directive contains no requirement for a worker to have exercised his right to leave (asked his employer whether he can take leave) before he can establish whether he should be paid for it. Applying this to the facts, as far as the 24.15 weeks were concerned, Sash Windows’ argument was that because Mr King had not taken this time off, he had not established that he should be paid for it. Essentially, Sash’s position was that Mr King should have taken the risk, and taken unpaid leave before he could bring a complaint to the tribunal. The CJEU’s decision confirms that this is not the case. The CJEU considered the remaining questions together, and concluded that workers should not be prevented from carrying over and accumulating paid annual leave until the termination of the employment, if the reason if the reason for not taking leave was the employer’s refusal to pay for it.

The practical implications of the decision

Now that these points of law have been determined, the matter will go back to the Court of Appeal for a final determination of the appeal/cross-appeal. It is hoped that this will provide clarity, but it seems that the result of the decision is that workers will be able to claim holiday pay, even if they have not taken any leave during the course of their employment. Once a worker ceases to be employed however, the right to claim holiday pay for untaken leave arises, regardless of the length of the contract. Given the raft of cases going through the Employment Tribunal system at the moment with ‘self-employed’ workers asserting that they are in fact workers (Uber is to appeal the recent EAT decision, the Supreme Court is to hear the Pimlico Plumbers litigation soon) we may well be in a position where a great number of individuals find that they are entitled to holiday pay for leave they’d never even taken. Unlimited accrual envisaged by the decision of the CJEU, means that many employers will face potentially huge bills if they are to remedy the holiday pay position in relation to those individuals.

What should organisations do?

While we need to see what the Court of Appeal finally decides in the domestic litigation, it would be as well for employers to consider a wholescale audit of the arrangements with ‘self-employed’ contractors. If the reality of the arrangements is that these people can consider themselves to be workers rather than genuinely self-employed, we’d suggest putting a plan in place to manage the situation. Litigation is costly and time-consuming, and many organisations may find it preferable to take action in a managed way rather than with the threat of multiple tribunal hearings hanging over them. If you have any concerns about how the decision in King v Sash Windows will impact on your business, do get in touch. We can help you audit your current workforce and establish the status of everyone working for you – whether employees, workers or genuinely self-employed. We can also help you put a strategy in place to manage any changes you need to make to ensure that you are complying with the Working Time regulations in light of this decision.