Entitlement to paid annual leave carries over indefinitely where an employer has denied a worker the right to paid leave

The Working Time Regulations, which implement the EU Working Time Directive, provide that statutory holiday entitlement expires at the end of each leave year if it has not been taken.

Case law has established that the only exception to this is where a worker has been unable to take holiday due to sickness absence, although employers do not have to allow carry-forward for more than 18 months after the end of the holiday year in which leave accrued. However, in King v The Sash Window Workshop Ltd, the ECJ has ruled that a salesman who was wrongly treated as self-employed was entitled to be paid on termination for holiday accrued at any time during his 13 year engagement where he was discouraged from taking it because it would have been unpaid. This is a highly significant decision for employers who have classified individuals as self-employed when in reality they are workers.

Mr King worked for The Sash Window Workshop as a commission-only salesman for 13 years. Since he was engaged on a self-employed basis, he received no salary and was not paid for holiday or sickness absence. When Mr King reached 65, his contract was terminated and he subsequently brought claims for age discrimination and holiday pay.

The Employment Tribunal held that Mr King was a worker. His age discrimination claim was successful and was not appealed. He was also awarded pay for holiday accrued in his final leave year but untaken at the date of termination; and for unpaid leave taken in previous years, which was claimed as a series of unlawful deductions from wages. However, his claim for leave accrued but untaken in previous years was eventually referred to the ECJ by the Court of Appeal. The company argued that because holiday not taken in a leave year is lost, Mr King was not entitled to pay for any accrued but untaken holiday in respect of previous leave years. Mr King argued that he had not taken his full leave entitlement only because he would not have been paid for it, and that he had therefore been prevented from exercising his basic right to paid leave under the Working Time Directive.

The ECJ agreed with Mr King, ruling that a worker is entitled to be paid on termination for any periods of annual leave that have accrued during their employment where they were discouraged from taking it because it would have been unpaid. It was irrelevant that the company wrongly believed that Mr King was self-employed and therefore not entitled to paid holiday, since employers are responsible for ensuring correct employment status. The ECJ also held that there was no limit on the amount of holiday that could be carried over, nor on the number of leave years it could be carried over from. This only applies to the four weeks’ holiday provided by the Directive, not the additional 1.6 weeks under the UK Working Time Regulations.

In its judgment the ECJ stressed that any act or omission by an employer that deters a worker from taking holiday is contrary to the purpose of the Working Time Directive, and that employers must bear the consequences of misclassifying a worker as self-employed. This is therefore a very significant case for employers who have wrongly labelled workers as self-employed contractors. In theory, back pay claims for holiday which was not taken because it would have been unpaid could date back to when the Working Time Directive came into force. Mr King’s case will now return to the Court of Appeal which will have to decide whether the Working Time Regulations are consistent with the ECJ’s ruling. Since Mr King continued to work instead of taking holiday, it will also have to decide how his financial loss will be calculated.