A worker must be able to carry over and accumulate unpaid holiday pay, rules the European Court of Justice (ECJ)

The Court of Justice of the European Union (CJEU) has held that a worker must be able to carry over and accumulate unexercised rights to paid annual leave when an employer does not put that worker in a position in which he is able to exercise his right to paid annual leave.

The long-running legal challenge concerned a claim brought by the salesman, identified as Mr King, against The Sash Window Workshop Limited. The dispute was over his employment contract, which did not specify if he was entitled to paid leave.

Conley King worked for The Sash Window Workshop from 1999-2012 as a commission-based salesman. After he was dismissed from the company, a UK tribunal ruled that he should have been classified as a worker rather than self-employed and, as such, was entitled to holiday pay for the 13 years he was with the company.

The salesman had been paid entirely on commission and his contract described him as self-employed. A UK employment tribunal subsequently found he should have been treated as a full-time worker.

In its judgment on Wednesday morning, the ECJ said:

“A worker must be able to carry over and accumulate unexercised rights to paid annual leave when an employer does not put that worker in a position in which he is able to exercise his right to paid annual leave.

“The employer was able to benefit from the fact that Mr King did not interrupt his professional activity … It is for the employer to seek all information regarding his obligations in regard to paid annual leave.

“In the absence of any national statutory provision establishing a limit to the carry-over of leave in accordance with the requirements of EU law, to accept that the worker’s acquired entitlement to paid annual leave could be extinguished would amount to validating conduct by which an employer was unjustly enriched to the detriment of the purpose of that directive, which is that there should be due regard for workers’ health.”

Law firm Peninsula brought the case as they wanted to seek a decision as it was an untested grey area for employers. Head of Legal James Potts commented:

“Following the confusion regarding holiday pay calculations, this is the next big holiday issue for employers to grapple with. This decision will have a significant impact on cases where the status of the individual is disputed. Where it is decided, a number of years down the line, that a self-employed individual was actually a worker the employer will face significant financial liability. They will have to compensate for taken but unpaid holiday during the relationship and will also have to pay for accrued holiday that wasn’t taken throughout their engagement.

Employers with self-employed individuals, whether these number in single figures or the thousands, need to seek advice on the real status of their workforce. Although contractual documents may be drafted to create a self-employed relationship, a tribunal can look behind this to examine what actually happens in practice. Once a decision is made that the individual is actually a worker or an employee, liability for significant holiday back pay will arise”

Comment from Clare Gilroy-Scott, partner at Goodman Derrick LLP who represents Mr King:

 “This case is of importance in clarifying that workers who are denied their entitlement under the Working Time Regulations to paid annual leave do not have to take a period of unpaid leave first before taking legal action to receive pay for that leave. This would otherwise have left a worker (who was without protection from unfair dismissal and reliant upon continued work) with the unattractive prospect of having to suffer a detrimental impact on his remuneration by taking unpaid leave. The court has confirmed that a worker may carry over and make a claim for untaken leave entitlement on the termination of the engagement in these circumstances.”

James Williams, barrister at Henderson Chambers who represents Mr King added:

 “This decision will be of great significance to many workers wrongly categorised by their employers as self-employed. In the short term they should now be able to bring, on termination of their engagement, a claim for all the holiday pay that they should have been paid during the working relationship. In the longer term, the decision should reduce the financial incentive for employers to deny that their staff are entitled to holiday pay – since if the employer gets this wrong, it must compensate the worker accordingly. This means that companies who deliberately categorise their staff as self-employed to deny them basic employment rights should no longer gain such a significant competitive advantage.”