Holiday Pay Decisions Overruled by Court of Appeal

14 March 2022

Justine Riccomini Sc FFTAAIPA Chartered MCIPD ChFCIPP, head of taxation at the Institute of Chartered Accountants of Scotland (ICAS) explains why the Court of Appeal’s decision in Smith v Pimlico Plumbers is so important for workers and their holiday pay

Main points:

the Court of Appeal has handed down its decision in the holiday pay claim case of Smith v Pimlico Plumbers
Mr. Smith was deemed to be a worker, engaged by Pimlico Plumbers, in the original 2018 employment status case
this latest decision has far-reaching consequences for those employing workers and the gig economy in relation to holiday pay.

Background

After 11 years of being engaged in a legal battle with his ex-employer, Pimlico Plumbers, Gary Smith has won the final claim he made against the company. This latest decision by the Court of Appeal, which was handed down on 1 February 2022 centres on holiday pay, and has reversed the decisions made in both the employment appeal tribunal (EAT) and the employment tribunal (ET). The result means Mr. Smith is now entitled to recover compensation for all the unpaid leave he took since his employment started. This happened because in 2018, the Supreme Court deemed Mr. Smith to be a ‘worker’.

How the decision came about

The judiciary was unanimous in its decision to uphold the principles laid down in the case of King v Sash Windows (a European Court of Justice [ECJ] case), which not only entitles workers to claim the indefinite carry-over and accumulation of the untaken part of their ‘Euro leave’ (i.e., four weeks per year), but also to any ‘Euro leave’ taken, but not paid.

Essentially, this means Mr. Smith has been given the right to claim unlawful deduction of wages arrears for up to four weeks of the leave he took each year but was not paid for. This is at the rate payable in respect of the work he was carrying out at the time.

Isn’t there a limit on the amount of years worker can claim for unpaid leave for?

There’s no restriction on the period of ‘Euro leave’ which can be accumulated, because the two-year limit set out at Section 23(4A) of the Employment Rights Act 1996 was set aside by the Court of Appeal. The employee isn’t time-restricted in the claim they make (unlike they are with other claims such as statutory sick pay), and the liability for that payment crystallises on termination of employment if they bring a claim within three months of termination. This will make things much easier for tribunals going forward. Nobody will need to establish what was taken/untaken/unpaid anymore – it’s simply four weeks per annum if they’re a classed as a ‘worker’.

What about post-Brexit claims?

In this case, Smith brought his case before the Brexit implementation period completion day (31/12/2020). This means the application of the King v Sash Window principles was unquestionable. But what about post-Brexit claims? Can ECJ case law still apply to them?

Some European Union (EU) legal principles point to the Marleasing principle. This is a duty to preserve the interpretations placed by the EU directive in accordance with Section 5 of the European Union (Withdrawal) Act 2018 as far as possible. So, while legal eagles might be trying to find ways to interpret things differently post-Brexit, Marleasing seems likely to stand for the time being, which is important for workers bringing cases like this to the tribunal following Brexit.

Regulation 30 of the Working Time Regulations (WTR) provides for someone to claim unlawful deductions from wages within three months which are due under WTR. The case of HMRC v Stringer supports this.

Although Pimlico Plumbers could seek to overturn this decision at the Supreme Court, it seems unlikely.

The founder of the company, Charlie Mullins recently sold the business to another entity, and they may not be interested in engaging with the courts so early in their tenure. Currently, Mr. Smith is owed in the region of £74,000.

What does this mean for employers, payroll professionals and agents?

Workers who have historically been denied any kind of claim for unpaid leave now have a pathway to claim an unlawful deduction of wages if:

they make the claim within three months of their leaving date, and

the employer can’t prove they:

gave the worker the opportunity to take paid annual leave
encouraged the worker to take paid annual leave, and
informed the worker the right would be lost at the end of the year.

Conclusion

If an individual is legally classified as a worker, whether the employer agrees or not, the cost could be heavy. Employers and their agents should start to review the employment status of anyone working as a self-employed contractor and seek the appropriate legal advice.