What are the legal implications for employers after Pimlico Plumbers lost the holiday pay case?
This new Court of Appeal decision is the latest in the long running case brought by Gary Smith, a plumbing and heating engineer, against Pimlico Plumbers. Gary Smith’s employer had regarded him as self-employed, but he went on to assert employment law rights as a worker.
The Court of Appeal has confirmed where a worker has taken annual leave, but it was unpaid, their holiday pay claim can carry over indefinitely and will not lapse at the end of the holiday year. This means where employers have incorrectly treated individuals as ‘self-employed’ contractors, who are in fact ‘workers’, there can be holiday pay claims that stretch back a considerable number of years.
Background to the Pimlico Plumbers holiday pay case
Worker status
The concept of ‘worker’ status is a minefield for businesses engaging individuals who are often incorrectly regarded by employers as ‘self-employed’ contractors.
There has been a steady stream of case law decisions that have concluded self-employed persons are in fact workers and therefore qualify for certain employment rights, including paid holiday.
A ‘worker’ means a person who is engaged under a contract other than a contract of employment. In a nutshell a person who works personally for the employer and is not self-employed.
A person who is genuinely self-employed would be running their own business and have relative freedom in the relationship. For example, the level of subordination would be little or non-existent, the control exercised by the engager would be minimal, the self-employed contractor would be able to provide a substitute to perform the services and so would not have to perform the work personally
It is vital to consider the reality of the situation, rather than just the contractual documentation or the status the parties would prefer to apply.
Holiday pay
Workers do not have access to the full suite of rights which apply to an employee. However, one of the key worker rights is to take paid holiday – a statutory minimum of 5.6 weeks (or pro rata) per annum.
The general principle with paid statutory leave entitlement is that a “use it, or lose it” rule will apply and holiday pay rights do not carry over from year to year, except for in specific situations such as sickness absence or maternity leave. However, this principle was relaxed by the European Court of Justice, in King v Sash Window Workshop (“King”) which concerned a ‘self-employed’ salesman determined to have worker status and was therefore entitled to payment of accrued holiday.
The court decided where a worker has been deterred from exercising their right to holiday pay over several years due to their employer failing to provide holiday pay, the worker is allowed to carry over their paid holiday rights until their contract terminates. On this basis, Mr King was due a payment of untaken holiday for 13 years. The Pimlico Plumbers case has extended these rights further, so that even where an individual is able to take holiday, if it is unpaid, again their holiday pay claim can be carried over to stretch back over a number of years.
Smith v Pimlico Plumbers holiday pay case
Gary Smith – who worked as a plumbing and heating engineer for the company between 2005 and 2011 – had already won against Pimlico Plumbers: in 2018 the Supreme Court agreed that he was a “worker”, having considered some of the issues mentioned above.
Mr Smith had also brought a claim for his accrued but untaken holiday pay during his engagement with Pimlico Plumbers and having established he was a worker this claim was remitted to the Employment Tribunal for consideration.
During his almost six years with Pimlico Plumbers, Mr Smith had regularly taken unpaid holiday at Christmas, summer holidays and bank holidays. The company’s position was that Mr Smith was not a worker and so did not have any right to paid holidays, this time off was unpaid leave.
Following decisions against Mr Smith in the Employment Tribunal and Employment Appeal Tribunal, the Court of Appeal has now overturned those decisions and confirmed that Mr Smith can claim compensation for all the unpaid leave he took during his employment.
The key points of the Court of Appeal’s decision for businesses to be aware of are:
- If engaging a self-employed contractor, and you do not give them the right to take paid annual leave based on the belief that they are not a worker, be wary of the fact that if they are found to be a worker, they will have the right to claim compensation for this annual leave;
- The relevant portion of annual leave is the EU law-derived four weeks, so it would not be possible for the worker to claim the additional 1.6 weeks (8 days or pro rata).;
- The rule applies to both any untaken portion of the four weeks’ leave and any taken but unpaid portion of the four weeks’ leave;
- There is no time restriction on the period of carry over, so individuals can recover compensation for all four weeks’ leave each year for the duration of their engagement. Someone who was engaged for 10 years and did not receive any paid leave for this period could claim 40 weeks’ normal remuneration as compensation;
- It is no defence if the employer honestly believed the individual was self-employed. So be careful to ensure you review employment status in your workforce correctly; and
- An employer must be able to demonstrate they specifically and transparently gave the worker the opportunity to take paid annual leave, encouraged them to take paid annual leave and informed the worker that the right would be lost at the end of the leave year if not used. So, employers should set up a process to ensure this happens.
Although the recent Pimlico Plumbers case decision could be challenged, the advisable position for employers remains the same. Ensure your workforce is treated in accordance with their correct employment status. Those who are workers are entitled to paid holiday should be able to utilise this statutory right.
If you require assistance with determining worker status or have any questions about entitlement to paid annual leave or are concerned about any of the issues raised in this article, please do not hesitate to get in touch with our Employment team.