Holiday pay: ECJ rules no limit on backdated holiday pay claims (in certain circumstances, at least).

Background

Mr King worked for Sash Windows on a self-employed ‘commission only’ basis, starting in 1999. He did take some holidays but was never paid for them. In 2008 he was offered an employment contract but he turned it down, preferring to remain self-employed. In 2012 his contract was ended. Mr King then claimed payment for holiday pay for the entire length of his contract (13 years). The Tribunal accepted that Mr King, despite being described as self-employed, was actually a worker.

Decision

In short, the ECJ allowed his claim. The ECJ ruled:

1. A worker does not actually have to apply to take his leave to be entitled to payment for it; and
2. Where an employer refuses to pay for holiday leave, the worker is allowed to carry over leave from one year to the next (apparently without limit.)

The Court were unimpressed by the employer’s argument that they didn’t know Mr King was a worker and therefore didn’t know he was entitled to paid holiday. The Court basically said it was up to an employer to correctly determine the legal status.

The Court in their judgement also seem to have been heavily influenced by the fact that workers are going to be deterred from taking holiday if they are not paid for it.

The decision in this case only applies to the four weeks’ leave granted by EU law and not the additional 1.6 weeks’ leave workers are granted by domestic legislation.

Where does this leave the law?

This case poses as many questions as it answers.

In UK law regulations were passed in 2014 preventing workers who were claiming holiday pay backdating their claims by more than 2 years. This decision drives a coach and horses through these regulations and allows workers to make unlimited back dated claims (at least those in the same situation as Mr King). The rule set down in a case called Bear Scotland, in which a claim for backdated holiday pay stopped if there was more than a 3 month gap between periods of holiday, also seems to have gone out of the window.

Although in this case Mr King wasn’t paid anything for periods of holiday leave, the principles in this case would seem to apply equally to underpaid holiday leave. As was said above, the Court was influenced by the fact that workers who aren’t paid for their holidays are deterred from taking them. The same logic is likely to be applied to workers who are not properly paid.

There have been a series of cases in which it has been held that holiday pay must be calculated by reference to a worker’s ‘normal remuneration’ – which includes allowances and regularly worked overtime – and not just their basic pay. Many employers, at least until fairly recently, calculated holiday pay by reference to basic pay only. We expect a claim by an employee for underpaid holiday pay stretching back to the start of their employment will arise fairly soon.

What can employers do now?

Employers’ options are fairly limited. There are certain legal arguments which can be deployed to try and limit backdated holiday pay claims but these only arise when litigation is started. For now employers can take the following steps:

1. Review the employment status of all those ‘self-employed’ individuals to see whether any liability is likely to arise. Consider whether a change to status is appropriate and / or whether provision should be made for holiday pay.
2. If you haven’t done so already, review how holiday pay is calculated. If you are still calculating holiday pay by reference to basic pay only, urgent advice is recommended.
3. If buying a business, ensure that you get proper warranty and indemnity protection against backdated holiday pay claims from workers who will be inherited.

We will of course keep our clients updated as the law in this area continues to develop. For more information, please get in touch with your usual contact in the Bridge McFarland employment team.