Scottish solicitor David Hoey, of BTO LLP, looks at the Court of Justice of the European Union’s decision in a case on holiday pay for miscategorised employees, with very serious implications for employers.

This is a topical issue with a plethora of cases seeking to identify what in law and in fact a worker is and what the constituent elements are. For those who attain the status of “worker” a number of rights ensue, including those arising under the Working Time Regulations which includes entitlement to paid holidays. What happens with regard to holidays if the parties describe the relationship as self-employed without realising that the individual is actually a “worker” in law?

This was the issue in King v The Sash Window Workshop Ltd. Mr King worked as a “self-employed commission-only salesman” from June 1999. He was given the opportunity to enter into an employment relationship (and was offered a contract of employment with specified rights, including holiday pay) but he declined and chose to remain self-employed (with no express right to paid holidays). Mr King raised a claim in the Employment Tribunal for holiday pay (amongst other things) following the termination of his engagement. The Employment Tribunal found that he was a worker for the purposes of the Working Time Regulations 1998 and awarded him pay in lieu of holidays accrued during his employment. His employer appealed arguing that as he had never asked for holidays, he was not entitled to be paid for them. This was because the employer had not prevented him from taking holidays and his entitlement expired at the end of the year. That argument was accepted by the Employment Appeal Tribunal.

The Claimant appealed to the Court of Appeal which referred a number of questions to the Court of Justice of the European Union which has now held in favour of the Claimant. The Court said that workers must be entitled to benefit from the remuneration which would otherwise be paid when on holiday. A worker who is faced with uncertainty as to holiday pay would not be able to benefit fully from that holiday and would thereby be dissuaded from taking holidays. It would also be contrary to European law to insist a worker seek leave and be refused it before a claim could be raised in the national court or tribunal. The Court also decided that there was no reason in principle where in cases such as this, namely where the employer failed to put measures in place to give workers their rights to paid holidays, claims for holiday pay could not be backdated to (potentially) the start of the engagement (when holidays were effectively denied). Holiday entitlement could potentially be carried forward until termination (with payment in lieu due at that juncture).

This decision has very serious implications for workers’ rights with regard to holiday pay. Individuals who have been wrongly classified as self-employed (with no holiday entitlement) who are workers could claim back pay in respect of unpaid holidays for the years during which they were workers and seek payment upon termination for each year’s holiday entitlement. It also possible that the legislation which limited back pay holiday claims to 2 years could be in breach of European law. It remains to be seen how this will be dealt with within our domestic system and by Tribunals.

Employers need to be careful as to how they classify staff and what rights they are given. Failure to provide rights to those who are considered workers could be a costly error. Taking time now to assess the position and minimise the risk will be key. Identifying the differing types of individual engaged and their legal entitlement and how this works in practice is important. Failing to prepare is preparing to fail.