No right to indefinite carry over of holiday where worker takes unpaid holiday

Posted on 17 March 2021

The Employment Appeal Tribunal (EAT) has dismissed appeals by Gary Smith against judgments of the Employment Tribunal (ET) that Pimlico Plumbers (Pimlico) did not discriminate against Mr Smith and he was not entitled to any amounts in respect of holiday pay. Mishcon de Reya has represented Pimlico since the outset of this litigation in 2011.

The judgment highlights that the CJEU's Sash Windows decision, which allows indefinite carry over of holiday where an employer refuses paid leave, is limited to situations where the worker is deterred from taking leave because the employer doesn't pay for holiday. Sash Windows doesn't apply where the worker actually takes holiday, even though that holiday is unpaid.

Background

In 2018, the Supreme Court held that Mr Smith had been a worker of Pimlico, and was entitled to pursue claims against Pimlico in respect of an alleged failure to pay holiday pay, and alleged disability discrimination.

In 2019, the ET heard Mr Smith's holiday pay and disability discrimination claims at two separate hearings. Pimlico successfully defended both claims.

Mr Smith appealed both judgments to the EAT. Mr Smith's appeal against the disability discrimination judgment was dismissed by the EAT during the hearing in December 2020 (a written judgment in respect of that appeal is expected shortly). The judgment handed down today concerns Mr Smith's holiday pay appeal.

The ET's holiday pay decision

During his engagement with Pimlico, Mr Smith was treated as an independent contractor, and did not receive pay for the holidays he took. Mr Smith sought holiday pay from Pimlico in respect of the entire period of his engagement.

The ET found that Mr Smith had taken holidays in each year of his engagement (but had not been paid for them). Mr Smith's last period of holiday was between 18 December 2010 and 4 January 2011. Mr Smith left Pimlico on 5 May 2011 and issued proceedings on 1 August 2011.

The ET found that Mr Smith's holiday pay claim had been brought outside of the statutory time limits. It therefore dismissed Mr Smith's claim for pay in respect of holidays taken (under regulation 16 Working Time Regulations 1998 (WTR) and section 13 Employment Rights Act 1996).  It also found that Mr Smith had not brought a claim that he had been prevented by Pimlico from taking holiday (under regulation 13 WTR), or a claim for payment in lieu of accrued but untaken leave (under regulation 14 WTR).

Mr Smith's appeal

Mr Smith's appeal rested in large part on the judgment of the CJEU in King v Sash Windows Workshop (Sash Windows). In that case, Mr King had been deterred from taking holiday because his employer did not pay holiday pay. This left Mr King without an effective remedy under the WTR – he had not requested and been refused holiday, so could not claim for breach of regulation 13 WTR, and he had not been underpaid for holiday he did take, so could not claim for breach of regulation 16 WTR. As a result, the CJEU found that the WTR was incompatible with EU law. Mr King was entitled to carry over all of the leave that he was deterred from taking during his employment, and was entitled to a payment in respect of it on the termination of his employment.

Mr Smith argued that Sash Windows did not only apply to cases where a worker is deterred from taking leave because an employer does not pay for holiday. Instead, Mr Smith said that the effect of Sash Windows was that any worker who is not paid for their holiday should be entitled to carry over the entitlement to paid annual leave, even if the worker does in fact take the holiday.

The EAT rejected Mr Smith's arguments. It found that Sash Windows was a case about the right to payment for accrued but untaken leave and does not apply to a case like Mr Smith's, where the worker has taken leave but not been paid for it. Mr Smith had been in a position to exercise his right to claim payment for the leave he took, pursuant to regulation 16 WTR. This meant that, unlike Mr King, Mr Smith had an effective remedy under the WTR. Mr Smith failed to exercise this remedy in accordance with the relevant time limits, and the EAT found that there is nothing in the Sash Windows judgment which indicates that those time limits should be disapplied.

The EAT also upheld the ET's findings that (i) Mr Smith had not brought a claim for payment in lieu of untaken leave in the year of termination under regulation 14 WTR, (ii) the pleaded holiday pay claim was brought outside of the three month time limit, (iii) it had been reasonably practicable for him to bring his claim within the three month time limit, and (iv) the ET was bound by the Bear Scotland v Fulton decision.

The EAT included in its judgment reinterpreted wording of regulations 13 and 30 WTR which takes into account Sash Windows and provides for a carry-over of holiday pay entitlement where, in any leave year, "a worker was unable or unwilling to take some or all of the leave to which the worker was entitled under this regulation because of the employer's refusal to remunerate the worker in respect of such leave".

Implications of the judgment

Since 2018, there has been considerable uncertainty amongst employers and legal practitioners as to the scope of the CJEU's judgment in Sash Windows. Some commentators speculated that employers who had historically not paid holiday pay (or had not paid it fully) could be subject to expensive claims for holiday pay looking back over the entirety of an employee or workers' employment. Combined with the line of cases concerning commission and overtime entitlements in the calculation of holiday pay, this analysis of Sash Windows could have left employers with large and difficult to quantify latent holiday pay liabilities.

The EAT's judgment in this case goes some way to addressing this uncertainty. Sash Windows only applies where a worker is deterred from taking holiday because they do not receive pay for it. If a worker takes holiday but is not paid for it, or is underpaid, they must bring a claim within three months of the underpayment (subject to the rules on series of deductions and the Bear Scotland decision).

This judgment is also a lesson for practitioners in the importance of pleading a holiday pay claim accurately. The EAT was unimpressed with the way in which Mr Smith's claim had been particularised (the Grounds of Claim were described as "not a model of drafting"). Practitioners should bear in mind the EAT's instruction that "in the context of holiday pay, where there are several distinct and separate rights that may be established, and which may give rise to different remedies, it is incumbent upon the Claimant to be specific [about] the substance of the pleaded case".  

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