What Happens If an Employer Has Wrongly Designated an Individual as Self-Employed?

The Court of Appeal in the UK has referred this question to the European Court of Justice (ECJ) for guidance in the case of King v The Sash Window Workshop Ltd.

Before the ECJ makes its decision, it in turn obtains views from its Advocates General.

Advocate General Tanchev has just issued his opinion that employers who incorrectly designate an individual as self-employed, and do not provide for any facility to take paid annual leave as a result, may be liable to pay for all accrued leave on termination.

The Facts

Mr King worked as a self-employed, commission-only salesman for The Sash Window Workshop Ltd (SWW) from June 1999. Despite being offered an employment contract by SWW in 2008, which would have included the right to paid annual leave, Mr King chose to remain self-employed under a contract which made no provision for this right. Throughout his period of service with SWW, Mr King was never provided with any opportunity to take paid annual leave, nor did he request it.

In October 2012, SWW terminated Mr King's contract. Mr King subsequently alleged that he had 'worker' status whilst contracted with SWW and should therefore have been provided with an opportunity to take paid annual leave. Now that his contract had been terminated he claimed for payment in lieu of all accrued but untaken leave.

The matter reached the Court of Appeal which sought guidance from the ECJ on whether a worker should be paid in lieu for all untaken annual leave even if payment for such leave had not been requested at the time.

Advocate General's Opinion

In the opinion of Advocate General Tanchev employers are under a duty to provide 'adequate facilities' to workers to enable them to exercise their right to paid annual leave. Where 'no facility has been made available by the employer' for workers to exercise their right to paid annual leave, on termination employers are liable to pay in lieu for all leave accrued during this period.

As Mr King's contractual terms were silent on the issue of paid annual leave, Mr Tanchev held that this necessarily meant that no 'adequate facility' was provided by SWW for Mr King to exercise his right. If SWW's offer to Mr King of an employment contract in 2008 amounted to a provision of an adequate facility, then an allowance in lieu of all untaken annual leave would be payable from the commencement of Mr King's employment in June 1999 to the date on which the offer was made. However, if the offer did not provide an adequate facility, then an allowance in lieu would necessarily have to cover the full period of employment.

Best Practice

This case has potentially significant consequences for employers who wrongly designate individuals as self-employed when they are in fact workers or employees. This is particularly topical given the string of recent cases about worker status in the gig economy.

It should be noted that Advocate General Tanchev's opinion is not binding on the ECJ, although it is considered persuasive.

We will keep you updated with developments, in particular the forthcoming decision of the ECJ.

For more information, please contact Michael Halsey in the Employment Law team on 020 7665 0842.