Significant decision on historic holiday pay claims
09 February 2022
Mr Smith was found to be a worker at Pimlico Plumbers by the supreme court in 2018. A worker is legally entitled to paid holiday, so as a result of this judgment Smith proceeded with his holiday pay claim.
At the employment tribunal (ET) and employment appeal tribunal (EAT), Smith’s claim was dismissed because it was out of time. It had not been brought within three months of the most recent incorrect payment. The court of appeal (COA) disagreed.
The court confirmed that both the ET and EAT had wrongly interpreted the European Court of Justice decision in King v The Sash Windows Workshop Limited. This case confirmed that where workers are denied their right to paid annual leave, the entitlement carries over indefinitely. In Smith’s case, he had taken leave, but had not been paid.
The COA said that an employer can only meet the burden of showing that it gave the worker the opportunity to take paid annual leave if it:
• 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
The judgement also casts doubt on the ‘series of deductions’ rule from the EAT decision in the Bear Scotland case. The rule states that where there is a gap of more than three months between the unlawful deduction (or underpayment) and the claim, the claim is out of time.
The COA said that the requirement to bring a claim within three months of every occasion where the claimant is not paid for leave is incompatible with the principle of effectiveness. The principle of effectiveness requires that claims based on EU law should not be subject to rules or procedures that make them impossible to practice or excessively difficult to enforce.
This is a significant decision which emphasises the importance of providing employees and workers with the correct holiday entitlement and payment. Employers who fail to do so risk adding significant court costs to their holiday pay bill.