A heating engineer who claimed he was owed holiday pay by Pimlico Plumbers after the Supreme Court ruled that he was a worker and not self-employed, has successfully appealed against a ruling made by the Employment Appeal Tribunal last year that his claim was out of time.
Legal experts are warning that the ruling could have “huge” implications for organisations that wrongly engage workers as contractors, as well as employers whose staff receive any kind of variable pay.
Last year the EAT upheld the Croydon employment tribunal’s 2019 ruling that Gary Smith had not filed his claim for backdated holiday pay quickly enough. Under tribunal rules, he should have made his claim for missed pay within three months of each holiday period, dating back to 2005.
But Lady Justice Simler this morning reversed that decision at the Court of Appeal, holding: “If a worker takes unpaid leave when the employer disputes the right and refuses to pay for the leave, the worker is not exercising the right.
“Although domestic legislation can provide for the loss of the right at the end of each leave year, to lose it, the worker must actually have had the opportunity to exercise the right conferred by the Working Time Directive.”
The right does not lapse but carries over and accumulates until termination of the contract, at which point the worker is entitled to a payment in respect of the untaken leave” – Lady Justice Simler
The legal arguments centred on how the employment tribunal had applied the precedent set in the case of King v Sash Window Company – another case that considered pay for holiday that had been taken and accrued by a worker.
Michael Ford QC, barrister at Old Square Chambers, wrote in a blogpost: “The judgment is of importance to all workers denied the right to any paid annual leave, usually on the basis that they are not ‘workers’, and to all claims for unlawful deductions from wages, not only those brought in relation to under-paid holiday pay under the Working Time Regulations.”
He added: “The implications of the judgment for ‘gig’ workers – to use the hackneyed phrase – is huge. Already, such workers could rely on King to carry over the untaken portion of four weeks’ leave each year and obtain full compensation for it on termination; now, according to the Court of Appeal, they can carry over taken leave as well.”
The employer’s burden
In her judgment, Lady Justice Simler explained that a worker can only lose the right to take leave at the end of the leave year (in a case where the right is disputed and the employer refuses to remunerate it) when the employer can meet the burden of showing that it:
- specifically and transparently gave the worker the opportunity to take paid annual leave
- encouraged the worker to take paid annual leave and
- informed the worker that the right would be lost at the end of the leave year.
Holiday pay and worker status
“If the employer cannot meet that burden,” she continued, “the right does not lapse but carries over and accumulates until termination of the contract, at which point the worker is entitled to a payment in respect of the untaken leave.”
In Smith v Pimlico Plumbers (2021) the appellant claimed that the employment tribunal was wrong to rule that he was not entitled to over £74,000 of holiday pay accrued over his six years’ service.
In conclusion in the Court of Appeal judgment, Lady Justice Simler said: “A claim to payment for all the leave which Mr Smith took but for which he was not paid in breach of his right to paid annual leave was inherent in Mr Smith’s pleaded case.
“It follows that the tribunals below erred in law in deciding otherwise. Moreover, this claim was in time because he was denied the opportunity to exercise the right to paid annual leave throughout his engagement with the respondent.
“The respondent could not discharge the relevant burden. The right did not therefore lapse but carried over and accumulated until termination of the contract, at which point Mr Smith was and remains entitled to a payment in respect of the unpaid leave.”
Glenn Hayes, employment partner at Irwin Mitchell, said: “This is a significant ruling not just for Pimlico Plumbers but all businesses with workers who were previously classified as self-employed. As Mr Smith’s case shows the financial cost of missed holiday pay can be significant and I suspect many organisations will be deeply concerned by this ruling.”
Stephen Ratcliffe, employment partner at Baker McKenzie, said it was also potentially significant for employers whose staff receive any kind of variable pay. He said: “Those who pay variable pay face the risk of legacy claims for underpayment of holiday pay when employment ends, even if it is some time since the employee last took their holiday.
“For those who engage people on a self-employed basis, the risk of claims that the individual was actually a worker or an employee is compounded by the risk of similar legacy claims for holiday pay. Perhaps most significantly, the government enacted a two-year backstop on these kinds of holiday pay claims, because of concerns over the potential multi-billion pound bills which employers might otherwise face for many years of holiday pay. This decision opens up scope for a future case to challenge whether that backstop is lawful.
“With the combination of this case and the proposed focus of the government’s Single Enforcement Body on holiday pay compliance, employers really need to focus on how they calculate holiday pay now, or else face what may be enormous holiday pay liabilities going back very many years.”
Pimlico Plumbers has been approached for comment.