Backdated holiday pay available for workers wrongly categorised as self-employed

Backdated holiday pay available for workers wrongly categorised as self-employed

Earlier last month the long-awaited European Court of Justice (ECJ), judgment relating to the case of, Sash Window Workshop and another v King was delivered. The Court held that Mr King an individual who was wrongly categorised as self-employed and denied the right to take paid annual leave, should have received that annual leave for the entire duration of his employment. The impact of the decision is that any employer who has previously incorrectly categorised “workers” as self-employed, and in doing so failed to allow the worker to take paid holiday, could now face unprecedented claims for unpaid holidays. Unlike earlier rulings in relation to unpaid holiday pay the scope of this ruling means that holiday pay could potentially be recovered as far back as 1998.

What happened?

Mr King entered into a self-employed commission-only sales contract with The Sash Window Workshop in 1999. This meant that when he decided to take annual leave he received no pay. This arrangement continued satisfactorily for both parties for 13years.  However, in 2012 when Mr King decided to retire from the arrangement he raised various complaints with an employment tribunal one of which was that he was entitled to receive holiday pay for the periods that he elected to take holiday leave and for holidays that he had accrued and not taken. Further he argued that Sash’s failure to pay that holiday pay amounted to an unlawful deduction from wages. Given that Mr King had previously held himself to be self-employed and enjoyed the reduced tax benefits that this brought, his action in this respect did appear somewhat unreasonable. Sash Windows defended the case. What then followed was a succession of wins and defeats for both parties through the UK tribunal’s and courts system.

At the first hearing heard by the employment tribunal Sash Windows defence against the argument that holiday was due and owing was unsuccessful. The employment tribunal held that Mr King was a “worker”, and as such he was entitled to the holiday rights afforded by the Working Time Regulations 1998. This decision did not sit well with Sash Windows and they subsequently appealed the decision to the Employment Appeal Tribunal. The Employment Appeal Tribunal upheld the earlier Tribunal’s decision that Mr King was entitled to exercise the working time right to paid holiday. However, in a twist of events the appeal tribunal found in favour of Sash Windows on the basis that Mr King failed to persuade them that he was denied the right to take paid holiday as no evidence was adduced that he ever made a request to Sash Windows to take paid holiday. Historically, Mr King would simply advise Sash Windows as to when he intended to take holiday, unlike employees or workers Mr King did not request permission to take annual leave. Mr King appealed that decision to the Court of Appeal and the point was referred to the ECJ.

What did the ECJ say?

The ECJ stated “an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences.” “The fact that Sash Window Workshop considered, wrongly, that Mr King was not entitled to paid annual leave is irrelevant.” The ECJ decision is of binding effect and will have to be followed as the UK is still a member of the Europe Union.

What are the implications of the case?

Businesses operating in the gig economy are most at risk of challenges regarding the status of those who are presently engaged with their businesses on a self-employed basis.

The decision only applies to the first four week of holiday originally provided by the European Working Directive. 

Until the case returns to the Court of Appeal, it is unclear how financial loss/remedy will be determined for any self-employed person who worked right through the holiday year with no periods of absence.  

The ruling calls into question whether the two year cut off period introduced by the Deduction from Wages (Limitation) Regulations 2014 is contrary to the intention of the Working Time Directive. Should this now be withdrawn? If, it is removed individuals that were previously barred from pursing holiday claims under this regulation might then be able to recover unpaid holidays.

What action should I take now?

  • Carry out an assessment of how many individuals you have engaged on a self-employed basis.
  • Calculate what holidays ought to have been provided to those individuals that you suspect might now be classed as workers.
  • Take legal advice on how to calculate backdated holiday pay, (you may wish to do this after the Court of Appeal has given its own judgment on the Sash Windows case).
  • Check that any future working arrangements with individuals are correctly classified.

As always, if you have a legal query please get in touch with the FSB Legal Helpline on 0345 0727727 and we'll be happy to assist you.