Case update (4):  Holiday pay – No carry over for taken unpaid leave

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Summary:  Are workers who are denied holiday pay, but take unpaid leave, entitled to a payment in lieu on termination where the claim would otherwise be out of time?

No, says the EAT in Smith v Pimlico Plumbers available here.

Background:  In King v Sash Windows the CJEU held that workers denied annual leave (including a refusal to pay for it) are entitled to carry it over until termination of employment when they can claim holiday pay dating back to when they started work.

Facts:  Pimlico Plumbers engaged Mr Smith as an independent contractor and, as such, he was not entitled to paid annual leave.  Mr Smith instead took unpaid annual leave.    At the end of his contract Mr Smith brought a claim for holiday pay in respect of this leave.

In 2018 the Supreme Court confirmed that Mr Smith was a worker, which enabled him to pursue his holiday pay claim.

Tribunal decision

The Tribunal dismissed Mr Smith’s holiday pay claim as out of time. A claim should have been issued within three months of the (last in the series of) unpaid leave.  The King v Sash Windows CJEU decision did not entitle Mr Smith to carry over payment for annual leave from year to year.  This only applies where the opportunity to take holiday is denied and leave is not taken.

Mr Smith appealed to the EAT.

EAT decision

The EAT dismissed the appeal and agreed with the Tribunal that the CJEU’s decision in King applied only to holiday that had not already been taken.

The EAT also confirmed its previous decision in Bear Scotland Ltd v Fulton and others that a gap of three months or more between deductions from pay will prevent earlier periods of holiday from forming a “series of deductions” which may otherwise allow claims for earlier deductions to be brought in time.

Implications:  This decision provides welcome relief to employers. It limits exposure to expensive claims from contractors who have taken holiday without pay and challenge their employment status.

In summary employees or workers who:

  • take holiday but are not paid for it should bring a claim within three months of the period of unpaid leave; and
  • do not take holiday because it has been denied by their employer (including non-payment) can carry it over into subsequent years and, on termination, claim payment in lieu for all the accrued untaken leave.

However, it is worth bearing in mind that this decision is likely to be appealed.  Also, it does not stop workers from bringing in time claims for unpaid holiday.   We therefore recommend checking you correctly classify your staff and that all workers and employees are allowed to take, and are paid, their statutory holiday entitlement.

This remains a complex area and if you have any holiday pay concerns please do please do email Menzies Law or call 0117 325 0526.

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