29th November 2017

Yet another blow to gig economy businesses

The outcome of the King v The Sash Window Workshop (SWW) Limited case rules that where the employer does not pay for annual leave, the worker’s entitlement to this leave carries over until the termination of employment.
At first blush, it may seem like an unusual occurrence: that an employer would permit the taking of annual leave, but not pay for it. However, in this case, Mr King had worked for SWW Ltd as a self-employed commission-only salesman since 1999. Some years later, he was offered an employment contract which included an entitlement to paid holiday. He refused this, preferring to continue on a self-employed basis and took unpaid holiday until SWW Ltd terminated his engagement in 2012. Mr King successfully argued that he was in fact a “worker” as opposed to a contractor and had suffered a series of deductions in respect of holiday pay.

The outcome of the King v The Sash Window Workshop (SWW) Limited case rules that where the employer does not pay for annual leave, the worker’s entitlement to this leave carries over until the termination of employment.
At first blush, it may seem like an unusual occurrence: that an employer would permit the taking of annual leave, but not pay for it. However, in this case, Mr King had worked for SWW Ltd as a self-employed commission-only salesman since 1999. Some years later, he was offered an employment contract which included an entitlement to paid holiday. He refused this, preferring to continue on a self-employed basis and took unpaid holiday until SWW Ltd terminated his engagement in 2012. Mr King successfully argued that he was in fact a “worker” as opposed to a contractor and had suffered a series of deductions in respect of holiday pay.

Following a successful appeal by SWW Ltd in the Employment Appeal Tribunal (EAT), Mr King responded by appealing to the Court of Appeal (CoA) which then referred several questions to the ECJ. Since the Working Time Regulations do not permit the carrying over of unpaid leave directly, the UK court asked the European body for clarification (among other things) on the extent to which this roll-over might be possible and whether payment for it can be claimed in lieu upon termination of employment.
The Advocate General’s opinion (given in advance of a formal ruling by the ECJ) was that, where the worker had been prevented from taking paid leave, the usual restrictions to carrying over leave should not apply. As such, Mr King would be entitled to payment for the annual leave he did not take up until the date on which he was permitted to take it – or in his case, the termination of his employment.

Further down the line, the ECJ’s full judgment went on to note that previous case law has allowed national law to limit workers’ rights to a carry over leave to a maximum of 15 months where sickness has been the reason for untaken paid leave. The 15-month limit was set to balance the protection of workers with that of employers who may be faced with organisational difficulties as a result of workers accumulating lengthy periods of untaken leave.
In Mr King’s case, sickness had not been a factor nor had SWW Ltd faced such difficulties. Instead, the company had benefitted from Mr King not taking his paid leave. The ECJ, therefore, concluded that the Working Time Directive allows a worker to carry over and accumulate unexercised paid annual leave until the termination of employment, where the employer has refused to remunerate that leave.

This will be a blow to gig economy businesses – and many others – found to be engaging workers rather than self-employed contractors who, once their “worker” status has been established, will be able to claim back pay for unpaid holiday entitlement going back many years. In the case of Mr King, this was 13 years’ worth of holiday pay. It is unlikely that employers will be able to rely on the Deductions from Wages (Limitations) Regulations which limit back pay claims to two years, on the basis that they are now incompatible with EU law.
It is another timely reminder for businesses to be clear on the status of those working for them and to ensure that their workers are benefitting from the correct entitlements, including not only holiday pay, but sick pay and the national minimum wage too.

To discuss any of the issues covered in this article, please contact Natalie Ward or another member of Thrings’ Employment and Immigration team.


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