10 February 2022 by Susanna Spencer

Historic holiday pay – employers beware!

In a decision with far-reaching implications for employers, the Court of Appeal has confirmed in Smith v Pimlico Plumbers Ltd [2022] EWCA Civ 70 new circumstances in which workers can claim all historic unpaid holiday pay.

The facts

Mr Smith, a plumbing and heating engineer, had taken holiday over a number of years, but he had not been paid for it. Pimlico Plumbers argued that Mr Smith was a self-employed independent contractor and therefore not entitled to holiday pay.

 

The Supreme Court ruled in 2018 that Mr Smith was in fact a ‘worker’ and therefore entitled to holiday pay. Mr Smith’s claim for holiday pay returned to the Employment Tribunal, where it was held that his claim was out of time as it was not brought within 3 months of the pay date corresponding with the unpaid holiday he took. Mr Smith appealed this decision unsuccessfully to the Employment Appeal Tribunal.

The decision

The Court of Appeal held that in the circumstances, Mr Smith’s leave entitlement had in fact carried over until termination of his employment, such that his claim was brought in time. The Court held that, bearing in mind the “single composite right” to be paid for annual leave when it is taken, Mr Smith should not lose his right to paid annual leave in circumstances where Pimlico Plumbers had denied his worker status, disputed the right to paid leave and refused to pay him in breach of the Working Time Regulations.

The impact of the decision for employers

The decision confirms that workers and employees who have taken unpaid leave in circumstances where employers denied their right to paid leave can now bring a claim to recover 4 weeks’ holiday entitlement for multiple previous years, so long as they put their claim in within 3 months from the termination of their employment / engagement. Legislation limiting claims for unlawful deductions from wages to 2 years’ losses can effectively be bypassed in this situation, as the unpaid leave accumulates until the end of the employment / engagement.

As a result, employers could face hefty bills for historic unpaid holiday pay from former staff, especially in sectors where employment status is uncertain and there are challenges from staff arguing that they were ‘workers’ and not truly self-employed.

Whilst bans on ‘carry over’ of annual leave from year to year are not prohibited, care does need to be taken to ensure that policies are in line with the law. An employer must show that it clearly gave the worker the opportunity to take paid annual leave, encouraged the worker to take paid annual leave and informed the worker that the right would be lost at the end of the leave year.

We can help

Holiday pay is a complex area of employment law and a number of important decisions have been made in recent years. At Bolt Burdon we can assist employers to ensure that appropriate policies and protections are in place, and employees to check that they are receiving their correct holiday entitlements. If you need assistance, please contact Susanna Spencer or Neil Johnston.

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