More clarity on holiday pay leads to more business liability

The European Court of Justice (ECJ) determined last week that a worker who was discouraged from taking statutory leave is entitled to be paid for all accrued annual statutory leave untaken over the full period of his engagement, at termination of employment.

He was discouraged from taking the leave during his engagement period as his employer indicated it would have been unpaid because of their classification of him as a self-employed contractor. The case came about following the re-classification of the claimant as a worker rather than self-employed contractor by the English Courts.

EU and UK legal background

As with all ECJ decisions in this area, this relates only to the four weeks paid statutory holiday prescribed by EU directive, and not to the 5.6 weeks as prescribed by UK employment legislation.

The EU directive was incorporated into UK law in 1998, by the Working Time Regulations 1998 (WTR). The WTR allows employees the right to raise a complaint at Employment Tribunal if an employer has refused to permit a worker to exercise their right to annual leave or if the employer has failed to pay for it. These claims must to be brought before the end of a three month period, beginning on the date on which the exercise of the right should have been permitted or the date on which payment should have been made.

UK regulations effective from July 2015 limit the ability to reclaim statutory holiday pay to a two year look back period.

The ECJ case

The employer classified the claimant as working on a ‘self-employed commission-only contract’ from 1 June 1999 - 6 October 2012. He was paid commission only and although he took some leave during this period, it was unpaid leave.

The claim raised in the ECJ was for pay for the accrued leave untaken throughout the whole period of his working relationship. The claimant said he was discouraged from taking the statutory four weeks paid leave each year because the claimant was lead to believe that the leave would be unpaid due to his employer dictated self-employed status. His successful claim was for over 24 weeks leave carried forward over a 13 year period.

The ECJ’s view was that as the claimant was in fact a worker, he was therefore entitled to four weeks’ statutory paid leave per year, and agreed that he had been discouraged by the employer from taking the leave. The court felt that the employer ‘must bear the consequences’.

Impact

Whilst the ECJ did not specifically state that the UK two year limited look back was invalid, this was implied in allowing this claim for accrued leave over a multi-year engagement. The ECJ also indicated some concern that limiting the ability to be paid for leave, which an employer had discouraged an employee from taking, would not be in accordance with the directive.

This case impacts significantly on gig economy workers now known to have been branded wrongly as self-employed who are in fact workers. Under this classification they are entitled to statutory holiday leave and statutory holiday pay. Where they have been discouraged from taking leave over their contract period by the employer’s indication that it would be unpaid, this case will apply and payment of accrued untaken leave will be due.

It is important to recognise that this case is not all embracing.

  • It only deals with workers who have failed to take their annual statutory holiday because they have been discouraged from doing so by their employer, usually by leading them to believe it not be paid.
  • It does not specifically cover situations where workers have taken their holiday but not been paid for it.
  • It does not cover situations where some holiday payments may have been made and those payments may have stopped the leave accumulation claim clock from running.

This ECJ decision comes whilst we wait for the government response to July’s Taylor Review. Part of the review recommended that the enforcement of holiday pay collection moves from Employment Tribunal to HMRC. 

The case also highlights Matthew Taylor’s premise of ‘Good Work’ ie that the government needs to be supporting and legislating for good employer/employee practice, but that businesses and employees also need to take responsibility for enacting in practice.