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Workers are entitled to full holiday pay with no 2 year limit

Posted On: [01/03/2022]

Compensation for unpaid holiday

In Smith v Pimlico Plumbers, the Court of Appeal said that a worker is entitled to claim compensation for unpaid holiday covering the entire period of his engagement. This included both holiday that he did not take and holiday that he did take but which was unpaid.

The Law on Holiday Pay

The right of employees and workers to take paid annual leave comes from EU law. Under the Working Time Directive, you are entitled to take four weeks paid leave per year. In addition, the Working Time Regulations 1998 gives you an additional 1.6 weeks' paid leave per year, taking your entitlement to 5.6 weeks' paid holiday per year. This remains the same despite Brexit.

There has been a series of cases in recent years about the holiday entitlements of individuals who were wrongly classified as self-employed, and, as such, were not granted any paid holiday by the employer. In King v The Sash Window Workshop Ltd, the ECJ held that the right to paid holiday under the Working Time Directive was a single right and should not be spilt in two (i.e. one right to take annual leave and a second right to be paid for it). In that case, the ECJ held that Mr King was entitled to recover compensation for annual leave that he had not taken during his engagement. The initial interpretation of this case was that the ability to recover holiday pay was limited to holiday that workers had not taken and would not apply to holiday that workers had taken but for which they had not been paid.

In Bear Scotland Ltd and others v Fulton and others, the EAT held that claims for unpaid holiday pay can be brought as a claim for unlawful deduction from wages. The time limit for bringing such a claim is three months from the date of the last deduction. The EAT held that if more than three months had elapsed between two deductions then the chain of deductions would be broken and a claim for earlier deductions would be time-barred. Following this decision, the Government enacted regulations which imposed a two-year backstop on claims for unlawful deduction from wages.

Gary Smiths Case

Gary Smith worked for Pimlico Plumbers between August 2005 and May 2011. Pimlico Plumbers said he was a self-employed independent contractor. He took leave, always unpaid. After leaving employment, he sued Pimlico Plumbers in the Employment Tribunal saying that he had really been a worker, not a self-employed contractor, and was entitled to compensation for holiday pay that he should have been paid during the engagement. This included payment both for holiday that he had taken (but for which he was not paid) and for holiday that he did not take.

The Supreme Court said that Mr Smith was a worker, entitled to 5.6 weeks paid annual leave per year and sent the case back to the ET. The ET rejected his holiday pay claim so he appealed to the Employment Appeal Tribunal (EAT) where le lost. Mr Smith then appealed to the Court of Appeal. The question in this appeal was the extent to which Mr Smith could recover historic holiday pay, and specifically whether the decision in King v The Sash Window Workshop Ltd meant that he could only get compensation for holiday that he had not taken.

The Court of Appeal said that the right to paid holiday was a "single composite right" to paid holiday, not two separate rights. If an employer refuses to recognise that a worker is entitled to paid holiday, forcing the worker to take unpaid holiday in order to have time off, then the worker is not exercising his right to paid holiday. This meant that Mr Smith was entitled to compensation for holiday pay for holiday that he had taken, as well as the remainder of his entitlement that he had not taken.

The next question was whether Mr Smith could recover holiday pay for the entire period of his engagement. UK law provides that the right to take the additional 1.6 weeks' paid holiday can lapse at the end of the holiday year. However, under the Working Time Directive, the worker must have the opportunity to take the holiday in order for it to lapse.

The court specifically referred to the duties of employers when it comes to annual leave. The Employer must prove that they;

  • specifically and transparently gave the worker the opportunity to take the holiday;
  • encouraged the worker to take paid holiday; and
  • informed the worker that s/he would lose the right to paid holiday at the end of the holiday year if it were not taken.

If the employer cannot satisfy these conditions, then the right to take four weeks' paid holiday will carry over until such time as the paid holiday is taken or the engagement ends. As Pimlico Plumbers could not satisfy these conditions, Mr Smith was entitled to compensation for holiday pay for the duration of his engagement.

What this means for you

This means that if you have been denied worker status by your employer previously, you are entitled to compensation for all your four weeks’ Euro leave – taken or untaken – every year for the duration of your employment. Your employer becomes liable when you leave the employment.

Workers were already able to carry over the untaken portion of four weeks’ leave each year and obtain full compensation for it on termination. Now, whenever a worker takes leave but is not paid for it because the employer refuses to pay for it because it denies their status, up to four weeks of that unpaid leave for each leave year will carry forward into the subsequent leave years and accumulate until termination of employment.

This also means that where an employer denies an employee their rights to any paid leave, there is no two-year limit in s.23(4A) ERA on the period of past recovery for unlawful deduction from wages. The claim simply needs to be brought within three months of termination of the employment and there is no limit on how far back it can go.

In circumstances where an employer starts to pay Euro leave after a period where they had been denying a worker’s status and not paying it, the right to the historic unpaid or untaken leave would appear to carry over until the employer can prove that it provided the three matters covered by the facility to exercise leave. If not, then the right carries over and crystallises upon termination of employment.