311: No right to holiday backpay where time off already taken as unpaid leave

In Smith v Pimlico Plumbers, the EAT has recently confirmed that a plumber was not entitled to back payment of around £74,000 for holiday which had been taken but not paid because he had been misclassified as self-employed throughout his engagement from 2005 to 2011.

In 2018, the Supreme Court ruled that Mr Smith was a worker rather than self-employed. This meant that he was entitled to various rights including paid holiday under the Working Time Regulations 1998 (WTR). The issue of whether he was entitled to a backdated payment for his many years’ unpaid holiday was sent back to the Employment Tribunal.

Mr Smith sought to rely on the case of King v The Sash Window Workshop Ltd in which the ECJ ruled that where a worker has not been given paid holiday as required by the EU Working Time Directive, they can carry over that right indefinitely until they have the opportunity to exercise it. The ECJ also confirmed that in these circumstances the worker will also have the right to payment in lieu of untaken holiday on termination of their employment. However, the Employment Tribunal held that the ECJ’s ruling did not apply where the worker had actually taken the holiday, but not been paid for it, as in Mr Smith’s case. It only applied where the worker had been deterred from taking holiday and benefitting from a period of rest and relaxation because they would not be paid for it, as in Mr King’s case.

The EAT has now dismissed Mr Smith’s appeal, agreeing with the Tribunal’s reasoning that the ECJ could not have meant that a worker should be reimbursed for leave that they had actually taken, only for leave that they had been deterred from taking due to the lack of holiday pay.

In any event, the EAT confirmed that the claim was out of time since it was presented more than three months after the date of the most recent failure to pay holiday pay. Although Mr Smith had been unaware of his status as a worker when he took the holiday, it was still reasonably practicable for him to have brought his claim on time. The EAT considered that although Mr Smith’s contractual documentation stated that he was self-employed, he could still have made enquiries about his true status and sought legal advice.

The ECJ’s decision in King meant that employers who had wrongly classified workers as self-employed faced claims for many years’ unpaid holiday, potentially for the whole period of the engagement. However, subject to any appeal, the EAT’s latest ruling in the Smith case means that the right to carry forward only applies in respect of accrued but untaken leave, not to holiday pay for leave which was actually taken. This clarification will be welcomed by many employers, particularly those in the gig economy where many workers have recently established the right to receive paid holiday. Provided these workers took unpaid time off as holiday, it will now be difficult for them to establish a claim to be paid for that holiday. However, employers may still face substantial liability for claims where workers can show that they were denied the right to any paid or unpaid leave during their engagement.