Employers need to consider whether their relationship with contractors truly reflects self-employment, or whether the individual has worker or employee status. Getting it wrong is becoming ever riskier
Just when you think that most of the questions on holiday pay have been answered, along comes the European Court of Justice (ECJ) to shatter our illusions.
Well, perhaps not all of them. We still know that employees (and workers) who work regular paid overtime and/or are regularly paid commission should have their holiday pay calculated with reference to those additional emoluments and not only at basic pay. In that regard, the main thrust of the case law over the last few years is unchanged.
Some other issues have been called into question, however. Those of you who have read our updates and/or attended our bi-annual seminars will know that certain limitations have been placed on how far back claims for unlawful deductions from wages can look.
Legislation was created to limit such claims to two years before the claim. Additionally, part of the ruling in Fulton v Bear Scotland was that a gap of three months between deductions (underpayments in relation to holiday) would ‘break the chain’ and prevent claimants from including previous underpayments in their claim.
King v SWW – Initial decisions
Whether or not those rules will remain in place is now unclear. Another case that has been working its way through the system is that of Mr King.
Mr King was a commission-only salesman for the Sash Window Workshop (SWW). He was engaged as a self-employed contractor for 13 years. After nine years Mr King was offered an employment contract, but turned this down.
While there were other elements to Mr King’s claim, for the purposes of this article his main claim was that he had not been able to take his full leave entitlement each year as he would not have been paid for the holiday due to being considered self-employed.
The Employment Tribunal (ET) found that he was a worker as opposed to a self-employed contractor, and awarded him compensation for both unpaid leave taken in previous years as well as for leave that he accrued but did not take in previous years.
The case then proceeded to the Employment Appeal Tribunal (EAT), which (in SWW’s favour) found that he had not been prevented from taking leave in previous years, and that there was no series of unlawful deductions. Mr King then appealed to the Court of Appeal (CA).
The ECJ’s decision
The CA referred a number of questions to the ECJ, the most significant of which were:
If a worker does not take some of their holiday entitlement because their employer refuses to pay them for it, can the worker claim that they were prevented from exercising their right to paid leave, so that the right to leave carries over until the worker has the opportunity to exercise it?
If the right does carry over, does it do so indefinitely or is there a limited period during which the right must be exercised?
The Advocate General (AG) gave an opinion that answered both questions in Mr King’s favour. In relation to question 2, the AG opined that carry over would continue until the worker has the right to exercise the right to paid holiday, or until termination. While the opinion of an AG is not binding on the ECJ, it will normally be considered persuasive.
Indeed, the ECJ agreed with the AG on both counts and found in Mr King’s favour. In relation to the extent of carry over (question 2), the ECJ held that imposing a limit that extinguished the worker’s right to untaken holiday would amount to validating the employer’s unlawful conduct.
The ECJ did, however, state that the facts of this case were in contrast to a worker who has been unable to take paid holiday due to sickness. In those circumstances (i.e. relating to sickness), a limit on carry over of holiday is still valid. That limit is currently 18 months from the end of the year in which the holiday could not be taken.
The ECJ also went further than the AG, and stated that the offer of an employment contract in 2008 was irrelevant to the case. The ECJ’s stance was that the case had to be decided on the employment relationship as it existed at the time of the claim, regardless of any opportunities to change it to Mr King’s benefit in the past.
What does this mean?
Perhaps the most crucial meaning of this decision is that workers could make similar claims all the way back to the introduction of the Working Time Regulations (WTR) in 1998. Clearly that could have significant ramifications for companies who have a long history of engaging self-employed contractors.
This decision may also trample on the limitations outlined above, i.e. the two year limit imposed by the legislation and the three month ‘break the chain’ rule set down in Bear Scotland. This point is not yet clear however.
Sash Windows can potentially be distinguished from the other holiday pay claims that we have seen as it deals only with the situation where workers have not taken annual leave because they have been led to believe that it will not be paid. It therefore does not address the situation seen in the majority of the other claims, i.e. where holiday pay has not been at the correct rate.
Overall, the picture that was becoming clearer has therefore become fuzzier once again.
A separate point to consider is how relevant this case may be to other organisations. Even as recently as a few years ago, this case may have seemed less significant as it related to a question of Mr King being classified as a self-employed contractor rather than a worker.
However, running alongside the saga of holiday pay claims, and indeed taking over that race, is the issue of the gig economy and the raft of claims on employment status.
We’ve recently reported on companies such as Uber, CitySprint and Addison Lee all having classed individuals as self-employed contractors when the ET / EAT has found them to be workers. One of the main impacts of those cases has been that the workers involved are and were entitled to holiday pay.
Taken together, therefore, it is not unfeasible for an individual to challenge both their employment status and their lack of previous holiday pay in the ET. This means that the ECJ’s decision is likely to be far more relevant now than it ever would have been previously.
On that basis, we again encourage organisations to consider their workforce to determine whether their relationship with contractors truly reflects self-employment, or whether it is more akin to the individual having worker or employee status. Getting it wrong is becoming ever riskier.
In the meantime, if you have any questions on any of the issues raised in the above article, such as the employment status of individuals carrying out work for you, please contact Seanpaul McCahill.
Seanpaul McCahill is Legal & HR Manager at Navigator Law, part of legal services firm Vialex. He is a dual-qualified employment solicitor and chartered HR professional
seanpaul.mccahill@navigatorlaw.co.uk
Navigator Employment Law specialises in employment law, HR, health & safety, immigration and GDPR. Based in Edinburgh, Navigator provides legal advice, conduct employment law, health & safety & GDPR audits, writes policies and procedures, represents at employment tribunal and acts for organisations in consultations and negotiations with unions. We also write and deliver bespoke training and development sessions and due to client demand, we have compiled an events programme to look at the most pressing issues facing clients today. Navigator is part of the Vialex group.
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