The recent Court of Appeal case of Smith v Pimlico Plumbers issued 1 February 2022 deals with (i) whether an individual who successfully argued that he was a worker rather than self-employed could claim for outstanding holiday pay when he took leave but was not paid for it; and if so, (ii) how far back could he claim outstanding holiday pay for.

Suzanne Wrench, our associate solicitor, provides this insight…

Gary Smith was a plumber and heating engineer who worked for Pimlico Plumbers from 2005 to 2011. He was considered by Pimlico Plumbers to be an “independent contractor” and it is an agreed principal that a genuine self-employed contractor is not entitled to holiday pay.

Mr Smith therefore did not receive any holiday pay for the period of time he worked for Pimlico Plumbers capacity although he did take periods of unpaid leave. He resigned in May 2011 and, having successful established he was a worker, his attention turned to pursuing his claims for outstanding holiday pay. He claimed that he was entitled to 4 weeks (20 days) pay, relating to each year he worked for Pimlico Plumbers.

The Working Time Directive states that the four weeks (20 days) may only be taken in the leave year when it is due and should not be carried forward. The legislation also states that upon termination of their employment, a worker is entitled to paid in lieu of unused statutory holiday from their final leave year only.

Mr Smith’s relied upon the European Court of Justice case of King v Sash Windows. Mr King had been told by Sash Windows that he was only entitled to take unpaid leave because they (wrongly) believed he was not a worker. In the ECJ’s opinion, this deterred Mr King from exercising his right to take annual leave and the result was that untaken leave entitlement had to carry over until the termination of his employment. To place a limit on what could carry over would result in the loss of Mr King’s rights.

Mr Smith drew parallels with Mr King’s case, but both the Employment Tribunal and the Employment Appeal Tribunal rejected Mr Smith’s claim on the basis that the principals King v Sash Windows did not apply to him – mainly because Mr Smith’s case related to leave he had actually taken but not been paid for, whereas Mr King had been deterred from taking annual leave at all because he was informed it would be unpaid.

Mr Smith appealed to the Court of Appeal, who upheld his appeal. They found that the principles in King v Sash Windows applied to both:

• leave that has been taken, but not paid (as per Mr Smith); and
• leave that was not taken at all where the worker has been denied the right to paid annual leave (as per Mr King).

In both cases, the misclassification of employment status had denied the individual’s their right to paid annual leave. As such, the appeal judges ruled that Mr Smith was entitled to backdated holiday pay, said to amount to over £74,000 accrued over his entire six years’ service.

Potentially huge implications

This decision will be particularly significant to employers who engage individuals who are treated and labelled as self-employed, but who may actually be workers or employees. The general risk of a claim that the individual was actually a worker or an employee is now compounded by the risk of a legacy claim for holiday pay, especially if bought at the point of termination. It would appear that where such claims are brought by those who remain engaged or employed, these would need to be bought as an unlawful deduction of wages claim subject to the Deduction from Wages (Limitation) Regulations 2014 which sets a two-year limit on any back payments for claims lodged post July 2015.

Recommended Steps

The Court of Appeal stated that a worker can lose the right to take leave at the end of the leave year (in a case where the right is disputed and the employer refuses to remunerate it) but only where the employer can meet the burden of showing:

• it specifically and transparently gave the worker the opportunity to take paid annual leave; and
• 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.

So as a practical step, we recommend that all employers actively encourage employees/workers to:

• know what their annual leave entitlement is and when they can take it; and
• in good time before the end of the leave year ensure that employees/workers are encouraged to take any unused leave; and
• remind them that, if they don’t use their entitlement, they will lose it.

An internal audit of your self-employed contractors, to assess whether there is any risk they could be deemed a worker, and therefore entitled to worker’s rights, would also be a sensible approach.

If you need any further advice in this complicated area, please contact us using the details below.