Holiday Pay - Is There a Limit on Repayment?
The recent decision that, when a worker is denied their entitlement to paid annual leave, the right to paid annual leave carries over indefinitely will have significant ramifications for many organisations...
...particularly those that operate (have operated) within the gig economy.
The Facts
In King v The Sash Windows Workshop Limited, Mr King was engaged from June 1999 as a self-employed commission only salesman until the contract was terminated in October 2012. During his contract, any holiday that Mr King wanted to take was unpaid.
Mr King was successful in bringing a claim for holiday pay in the Employment Tribunal, who found that for the purposes of the Working Time Regulations 1998 he was a 'worker'. The ET awarded Mr King holiday pay in respect of accrued but untaken annual leave during the most recent holiday year, but also awarded holiday pay in respect of leave accrued in previous years.
Following appeals, the case ended up in the Court of Appeal (CA), who referred the question of holiday pay entitlement for untaken leave to the European Court of Justice (ECJ). The CA sought guidance on the extent to which a worker could carry over annual leave over a number of holiday years and accrue until termination.
ECJ Judgement
The ECJ held that organisations who prevent their workers from taking annual leave (by denying workers their holiday pay), are preventing those workers from exercising their right to paid annual leave. In addition, the ECJ said that a claim for accrued annual leave entitlement cannot be prevented due to the start of another holiday year, and that this principle was incompatible with EU law.
Most significantly, the ECJ held that the normal time limits of how much holiday can be carried over do not apply when an organisation has failed to grant paid annual leave to their workers. This means that a worker could be entitled to accrued but unused holiday entitlement on the termination of their employment for holiday that they decided not to take because their leave would be unpaid.
When considering the recent decisions regarding 'worker' status in the recent cases involving Uber, CitySprint and Addison Lee, this decision could result in significant liabilities for organisations in the gig economy and potentially thousands of claims for payment in lieu of unpaid holiday.
Best Practice
The case has been referred back to the Court of Appeal who will need to determine whether the UK legislation - the Working Time Regulations - can be interpreted in line with this recent decision. In the meantime, all organisations should review their potential exposure to workers alleging historic entitlement to accrued but unused holiday entitlement. The ECJ made clear that it is the responsibility of an employer to inform itself of its obligations and if it does not allow workers to exercise their rights to holiday (by not paying them for any holiday taken) then it is for that employer to bear the consequences, and potentially significant costs, of accrued but unused holiday pay.