Employment Law Speed Read – 11/12/17

King v The Sash Window Workshop Ltd and another

In King v The Sash Window Workshop Ltd and another the European Court of Justice (ECJ) has issued an important Judgment on holiday pay.

Background

The Working Time Directive (the ‘Directive’) provides that member states must ensure that every worker is entitled to at least 4 weeks of paid annual leave and that payment in lieu of annual leave may only be made on termination.

The Directive was implemented in the UK by the Working Time Regulations 1998 (the ‘Regulations’) which separates the right to take leave and the right to be paid for leave into two distinct regulations. This means that, under the Regulations, for a worker to establish the right to paid leave, they must first take the leave and then bring a claim for unpaid wages for the leave taken. The Regulations also state that a worker’s annual leave must be taken in the leave year in which it is due and cannot be replaced by a payment in lieu except on termination of employment (although the courts have recognised that employers may have to allow carry-over where a worker has been unable to take annual leave due to being on sick leave).

The case 

Mr King worked as a commission-only salesman for 13 years. He received no salary, and was never paid for any holidays or periods of sickness absence.

After nine years, the company offered him an employment contract under which he would be entitled to paid annual leave, but he refused.

Mr King was dismissed when he reached 65 and subsequently brought claims for age discrimination and unpaid holiday pay.

The age discrimination claim was successful and was not appealed.

An Employment Tribunal held that Mr King was a worker and awarded him holiday pay in respect of:

• Leave accrued in the final leave year but untaken at the date of termination.
• Leave requested and taken as unpaid leave in previous years, claimed as a series of unlawful deductions from wages.
• Leave accrued but untaken in previous years (this was the controversial bit).

The company appealed against the decision to award payment in respect of leave accrued but untaken in previous years.

The Employment Appeal Tribunal upheld the appeal on the ground that Mr King had not been prevented by reasons beyond his control from taking annual leave and therefore he lost his accrued but untaken entitlement at the end of each leave year.

Mr King appealed to the Court of Appeal. They referred the following questions to the ECJ:

• Is regulation 13 of the Regulations consistent with Article 7 of the Directive, given that a worker has to take unpaid leave before they can establish whether they are entitled to be paid for that leave?
• If a worker does not take some of their annual leave entitlement because their employer refuses to pay them for it, can the worker claim that they were prevented from exercising their right to paid leave, so that the right to leave carries over until the worker has the opportunity to exercise it?
• If the right does carry over, does it do so indefinitely or is there a limited period during which the right must be exercised?
• If there is no statutory or contractual provision specifying a limit on carry-over, should the court impose a limit in order to ensure that the purpose of Article 7 is not distorted?
• If so, is a period of 18 months following the end of the holiday year in which the leave accrued compatible with Article 7?

The ECJ held that:

• Paid annual leave in the Directive is a single right, whereas the Regulations deal with it as two separate rights. The ECJ held this was not compatible with the Directive;
• A worker who is not sure of being paid during a period of leave will not benefit fully from that leave as a period of relaxation and leisure, and is likely to be dissuaded from taking it at all. Any act or omission of the employer that deters a worker from taking leave is contrary to the purpose of the Directive;
• The right to carry over in these circumstances is indefinite;
• Since the existence of the right to paid leave cannot be subject to any preconditions whatsoever, it was irrelevant whether or not Mr King had put in requests for paid leave over the years; and
• Where a worker has not exercised their right to paid holiday over several years because their employer wrongly failed to provide holiday pay, the Directive requires that the worker be allowed to carry over their paid holiday rights until the termination of employment.

Comment 

This decision will have significant implications for those whose status has been misclassified as genuinely self-employed rather than a worker. It could also mean that the two-year cap on back pay to an unlawful deduction of wages claim is unlawful. Consequently, this case is likely to lead to an increase in litigation.

If you have any questions on the above and how it will affect you, please do not hesitate to get in touch with a member of our employment team.