Unlimited carry-over of paid holiday entitlement

In King v The Sash Windows Workshop Limited, the Court of Justice of the European Union (CJEU), has decided that a worker who does not take their holiday, because the employer refuses to pay for annual leave, carries over their paid holiday entitlement indefinitely. 

This case, which is the latest in a long line of holiday pay cases, has potentially huge implications for businesses engaging self-employed contractors who, in fact, turn out to be “workers”, with an entitlement to paid holiday. 

Background

Mr King was engaged by Sash Windows as a “commission only contractor”. His contract described him as self-employed. As Sash Windows believed Mr King to be self-employed, it did not give him paid holiday entitlement. So, when Mr King took time off, he was not paid. 

When Mr King’s contract was terminated, he claimed he was a “worker”, and was entitled to paid holiday under the Working Time Regulations (WTR). He argued he was entitled to receive payment for his unpaid annual leave going back to when his engagement started, in 1999.  He claimed he had not been able to take this leave, because Sash Windows did not provide pay during leave. 

Mr King was successful at the Employment Tribunal, who decided he was a “worker” and was therefore entitled to paid annual leave. Sash Windows’ argument, however, was that under the WTR, Mr King lost his right to paid holiday if he did not take it in the holiday year to which it related.  The case went to the Court of Appeal, who referred a number of questions to the CJEU.

CJEU’s decision

The CJEU decided that, where a worker has not exercised their right to paid holiday because their employer wrongly failed to provide holiday pay, European law requires that the worker be allowed to carry over their paid holiday rights until the termination of employment. 

If a worker has not taken some or all of their annual leave entitlement, because their employer refuses to pay them for it, the worker is entitled to say they have been prevented from exercising their right to paid leave. If this is the case, the leave is carried over until the worker has the opportunity to exercise that right, or until termination.

Sash Windows’ ignorance of Mr King’s true “worker” status, was no defence to not paying him holiday pay. The CJEU said: “The fact that Sash Window Workshop considered, wrongly, that Mr King was not entitled to paid annual leave is irrelevant. Indeed, it is for the employer to seek all information regarding his obligations in that regard.”

Employers may be familiar with the “two years back pay” limit which applies to holiday pay claims, allowing a worker to only claim unpaid holiday pay going back two years. In this case, however, the CJEU decided that limit did not apply, and there should be no limit on carry-over of holiday pay in this type of scenario. Liability could therefore stretch back many years. The rationale for this, effectively, was that if there was a limit on how far back a worker could go, that would amount to validating the employer's unlawful conduct in not paying holiday pay in the first place. 

Like other recent cases on carry over of holiday, this ruling only applies to the four weeks' annual leave granted to workers by the European Working Time Directive, not the additional 1.6 weeks available to UK workers under the WTR.

Implications for businesses

  • This case will now go back to the Court of Appeal, which will have to decide how to apply the CJEU’s ruling so that it is consistent with the WTR. We may get some further clarity from the Court of Appeal.
  • The key underlying consideration for the CJEU in this case, which has been the common thread in all of the recent holiday pay cases, is that workers should not be deterred from taking annual leave, given the health and safety objectives.
  • Undoubtedly, this case will lead to an increase in claims from individuals who believe they have been wrongly classified as self-employed, and who claim they are in fact “workers” and entitled to paid holiday.  Due to the unlimited carry-over, this means businesses who engage such individuals could find themselves with very substantial claims for holiday pay, going back a number of years.   
  • Businesses who engage individuals on a “self-employed” basis should make sure they have got their assessment of the individual’s legal status correct. The recent “gig economy” cases concerning Uber and Deliveroo, for example, remind businesses that the “test” for employee or worker status is how the relationship between the business and the individual actually operates in practice, not simply what “label” is used to describe the relationship.
Jonathan Royle, Employment Senior Associate

Jonathan Royle

Senior Associate