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21 August 2017

66: UK worker could be entitled to termination payment for unpaid annual leave

The Advocate General has issued his opinion in the case of King v The Sash Window Workshop Ltd (SWW) that a salesman who was wrongly classified as self-employed rather than a worker throughout his 13 year engagement was entitled to payment in lieu of unpaid statutory holiday when he left the company.

Mr King worked as a self-employed, commission-only salesman for SWW from June 1999 until 2012. Despite being offered an employment contract by SWW in 2008, which would have given him the right to paid annual leave, Mr King chose to remain self-employed under a contract which made no provision for paid holiday. He took varying amounts of unpaid holiday each year. Throughout his engagement, 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 claimed that he should have been treated as a worker, not self-employed, and sought compensation for pay in lieu of accrued but untaken annual leave for his entire engagement with SWW. He alleged that he had not taken his full leave entitlement each year because it would have been unpaid. The Employment Tribunal held that both parties had genuinely mistaken Mr King’s status and agreed that he had been a worker, not a self-employed consultant. This meant that he was entitled to payment in lieu of accrued but untaken holiday for the whole of his 13 year engagement. However, the Employment Appeal Tribunal (EAT) upheld SWW’s appeal, ruling that since Mr King had worked during the periods when he might have taken the annual leave, he had not lost out financially. Mr King’s case eventually reached the Court of Appeal, which sought guidance from the ECJ on whether Mr King should be paid in lieu for all his untaken annual leave even though he had never requested to take it.

The Advocate General’s opinion notes that the EU Working Time Directive requires employers to provide ‘adequate facilities’ to allow workers to exercise their right to paid annual leave. An ‘adequate facility’ will usually be specific contractual terms giving workers the right to take paid leave. A worker who has not taken some or all of their annual leave entitlement because their employer refuses to pay them during that leave is entitled to claim that they have been prevented from exercising their right to paid leave under the Directive. In these circumstances, the right carries over until the worker has the opportunity to exercise that right. The Advocate General’s opinion also confirms that if no adequate facility for the exercise of the right to paid leave has been provided, the holiday pay due on termination should cover the full period of employment, with no restriction on the length of the carry over period.

As Mr King’s contract was silent on the issue of paid annual leave, the Advocate General stated that this necessarily meant that no ‘adequate facility’ was provided by SWW for Mr King to exercise this right. If SWW’s offer to Mr King of an employment contract in 2008 amounted to provision of an adequate facility, then a payment 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 payment in lieu would have to cover the full 13 year period of his employment.

It is clear from recent cases that there are potentially large numbers of individuals working in the gig economy in particular who have been treated by companies as self-employed when in fact they may be workers or even employees. If the ECJ’s ruling follows the Advocate General’s opinion, this could therefore have significant financial and administrative consequences for such companies. Mr King’s holiday claim, for example, amounts to around £27,000. However, his claim will still then have to return to the Court of Appeal to decide whether it should succeed on its facts. It should also be noted that this claim only deals with the situation where workers have not taken annual leave because they have been led to believe it will not be paid. Workers who have taken leave but not been paid for it must bring a deduction from wages claim, within three months of the deduction or the last in a series of deductions.

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