Wrongly identifying ‘workers’ and ’employees’ can lead to
costly unfair dismissal pay outs, redundancy awards and entitlement to paid
Getting it wrong when it comes to determining the employment status of a
worker can be costly for employers. Unfair dismissal awards, redundancy
payments and entitlement to paid annual leave are a few examples of the minuses
on the HR balance sheet that can occur from failing to identify whether an
individual is an ’employee’ or a ‘worker’.
One recent case, Canada Life Ltd v Gray and Farrar, demonstrated the cost of
failing to offer holiday pay to staff who the employer mistakenly believed were
not eligible ‘workers’ under the Working Time Regulations 1998 (WTR).
Gray and Farrar (G and F) were self-employed consultants engaged by Canada
Life (CL) under a commission-only agreement that made no provision for holiday
pay. When their services were terminated, they claimed entitlement to holiday
payments under the WTR stretching back to 1 October 1998, when the regulations
first came into force.
Having found that G and F were workers under the WTR, CL appealed against
the employment tribunal’s finding that they were entitled to paid annual leave.
It concluded this was on the basis that to claim holiday pay, a worker must
actually give notice and take their holiday entitlement in the appropriate
leave year, as stated by the WTR.
CL relied on the Employment Appeal Tribunal (EAT) decision in Brown v Kigass
Aero Components Ltd. Kigass held that paid leave continued to accrue during
periods of long-term sick leave. However, it also suggested there would be no
right to holiday pay if the worker hadn’t exercised their annual leave
In Canada Life, the EAT confined the Kigass decision to cases dealing with
holiday pay entitlement during employment. G and F’s claims concerned
post-termination entitlement. The EAT followed another post-termination case,
List Design Group v Catley, where the right to holiday pay was held not to be
dependent on leave actually being taken.
By withholding holiday pay, CL was found to have made unlawful deductions of
wages under the Employment Rights Act 1996 (ERA). This amounted to back
payments for G and F of £30,078 and £19,107 respectively.
The advantage of bringing a claim under the ERA and not the WTR is time. The
limit for a WTR claim is three months from the date on which payment should
have been made. As the WTR do not permit untaken holiday entitlement to be
carried over from one year to the next, this would have meant that most of G
and F’s claims were out of time.
Under the ERA, G and F could claim for the full extent of their unpaid
holiday entitlement. The time limit for an unlawful deduction that is part of a
series, is three months from the last unlawful deduction in the series (final
commission payment for G and F).
The recent EAT decision in Comissioners of Inland Revenue v Ainsworth &
Others may offer employers some comfort in the future. Ainsworth reconsiders
the Kigass right to accrue paid holiday when a worker isn’t in a position to
work, and is unpaid for a substantial time. It also looks at the extension of
that right by List Design and Canada Life. The EAT has granted permission to
appeal to the Court of Appeal on all of these points.
A recent Court of Appeal decision, Brook Street Bureau (UK) Ltd v Dacas,
looks set to raise ‘status anxiety’ even further, by encouraging agency staff
claims that they are employed by the end-user, and so entitled to the whole
range of employment rights.
Dacas urges tribunals to consider the possibility of an implied contract of
employment between workers and end-users (albeit subject to the usual
requirements of mutuality of obligation and day-to-day control). Lord Justice
Sedley even suggests that where an agency worker has been engaged for a year or
more by an end-user, there is likely to be an inference of employment. Status
By Stefan Martin, Partner, Allen and Overy