21 June 2017

Few areas of the law have given rise to as much recent litigation and confusion as the 1998 Working Time Regulations, and in particular the right to paid holidays.

The Advocate General of the European Court of Justice has issued an opinion in the UK case of King v The Sash Window Workshop Ltd and others. This is a preliminary view and will not necessarily be confirmed by the court itself, later in the year, but the court does usually follow the opinions of the advocate general.

This case focuses on carrying forward holiday entitlement, and in particular what happens when the employer refuses to allow paid holidays at all?

We know that annual leave under the Working Time Regulations, at least to the extent of the 5.6 weeks’ statutory entitlement, should be used in the year it accrues, and not carried forward. However, where the employee/worker is unable to take holidays due to unavoidable incapacity, illness etc, then the employer may have to allow the holidays to be carried forward, for up to 18 months before they are lost. Does the same apply when the employer does not allow paid holidays?

It may seem unlikely that an employer would refuse to allow paid holidays, as the entitlement is well known, but in this case Mr King was treated as self-employed with a commission-only contract. As the company did not view him as an employee or even a worker (remember the right to paid annual leave extends to the much wider category of “worker”), it did not make any provision for paid holidays.

After his 13 years with the company came to an end, Mr King was declared by an employment tribunal to have been a worker all along, and he had been entitled to paid annual leave throughout. He sought compensation not just for the holidays he took, which he had not been paid, but for the holidays he didn’t take but had (it now turns out) been entitled to. He argued he did not take them because he knew they would not be paid, and this was a disincentive.

The employer argued that even if he was a worker he could not make this claim because:

1. There is no right to be paid for holidays unless they are actually taken – he should have taken the holidays and then claimed payment
2. In any case, holiday entitlement does not carry forward
3. If it does, it is only by 18 months
4. Any entitlement to holiday pay for any earlier periods of time has lapsed or in any case is timebarred – you can’t claim for 13 years of untaken holidays

The tribunal and Employment Appeal Tribunal (“EAT”) rejected these arguments and upheld Mr King’s claim. The Court of Appeal referred the matter to the European Court and the Advocate General largely agreed with the EAT’s findings.

The main observations are:

1. The obligation is on the employer to ensure there is a proper facility in place for the worker to take annual leave. If there is no such facility, you cannot put the onus on the worker to take the holiday and then try to get paid for it. The lack of any facility is a disincentive for workers to take their holiday entitlement as they know it will be unpaid.
2. If there is no facility in place, the entitlement to take annual leave rolls forward. There is no 18 month limit (as is the case where there is a facility for taking paid annual leave, but the worker cannot exercise it)
3. As such, if the individual’s appointment comes to an end and no such facility was ever granted, they will be entitled to payment for such holiday entitlement as should have been granted over the course of the engagement. That will be a sum due on termination so the time limit for lodging a claim with the employment tribunal will only start to run at that point.

In this case, Mr King had been offered a contract of employment some years ago, but had elected to remain “self-employed”. The Advocate General proposes that the case be remitted back to the UK courts to consider whether this offer amounted to the employer providing a facility whereby the worker could have elected for paid annual leave, but chose not to. If there had been a facility made available at that stage, then entitlement to paid annual leave would no longer accrue, if untaken.

This decision, if followed by the European Court, would be a highly significant one. Many employers enter into “self-employed” consultancy arrangements with “contractors” who are stated in the documents to be self-employed, and where no provision is made for holidays, paid or unpaid. The fact that the contract refers to “self-employment” is not, however, conclusive, and a tribunal is entitled to find that the person was an employee or at least a “worker” (if there is a contract to do work personally for the company, and the company is not a customer of the individual’s business).

What this decision would mean for such persons is that year by year, entitlement to paid annual leave will accrue, and whatever the length of the engagement, the worker could claim compensation for that annual leave at the end of the engagement. If entitlement has built up over a number of years that could be a significant sum, which could come as an unexpected and unwelcome shock to the company.

This is a complex area and expert advice should be taken.

Contact: Douglas Strang Senior Associate dst@bto.co.uk T. 0141 221 8012