Case update: worker could carry over unpaid leave that has been taken because employer did not recognise their worker status

Case update: worker could carry over unpaid leave that has been taken because employer did not recognise their worker status

Smith v Pimlico Plumbers [2022] EWCA Civ 70

In March last year, we reviewed the case of Mr G Smith v Pimlico Plumbers Limited UKEAT/0211/19/DA. We discuss the relevance of this decision below, and you can find out more here. However, the Court of Appeal has since overturned the decision of the Employment Appeal Tribunal holding that a worker can carry over leave that has been taken, but not paid, and will have a legal route to claim for payment.

Factual background

Mr Smith was engaged by Pimlico as a plumbing and heating engineer until 3 May 2011. During the six years of his employment, he took various periods of unpaid leave – he was not paid on the basis that Pimlico took the view that he was engaged as an independent contractor.

Legal background

On 1 August 2011 Mr Smith claimed in the Employment Tribunal for unpaid holiday under regulation (30)(1)(b) of the Working Time Regulations 1998 (WTR) and section 23 of the Employment Rights Act 1996 (ERA), and compensation under regulation 30(1)(a) of the WTR 1998 on the basis that he was prevented from taking holiday. As a preliminary issue, the Employment Tribunal found that Mr Smith was in fact a worker as opposed to an independent contractor meaning that he had the status to bring such claims. This decision has since been upheld all the way to the Supreme Court.

Following the decision of the Supreme Court that Mr Smith was a worker, the Employment Tribunal dismissed the claims on the basis that they had not been brought within the statutory time limit of three months from the date on which payment for leave should have been made. The Employment Tribunal was also unable to look back further than two years from the date of the complaint.

Mr Smith appealed this point to the Employment Appeal Tribunal, relying on the case of King v Sash Window Workshop (C-214/16) [2018] ICR 693 (King). In King, the European Court of Justice held that there was a single right to ‘paid leave’ rather than separate rights to leave and to pay. A worker is entitled to say that they have been prevented from exercising their right to paid leave in circumstances where they have not taken some or all of their holiday entitlement as a result of an employer’s refusal to pay for such leave. In these circumstances, a worker is entitled to carry over such leave until they can exercise their right, or until termination. The usual two-year rule does not apply and the worker can claim for the amount of unpaid holiday for the whole of their employment.

The Employment Appeal Tribunal upheld the decision of the Employment Tribunal and found that Mr Smith could not rely on King given the differences in the factual circumstances, and the claim was therefore out of time. King had been deterred from taking annual leave whereas Mr Smith had taken the leave, but not been paid. As a result, Mr Smith, unlike King, had an out of time claim for unlawful deduction from wages as opposed to an in-time claim relating to the right to take paid annual leave under the WTR.

What did the Court of Appeal hold in Smith v Pimlico Plumbers Limited?

The Court of Appeal, giving particular consideration to the decision in King, upheld Mr Smith’s appeal. The Court found that King has broader application; the single right to ‘paid leave’ covers workers who take unpaid leave because the employer refuses to recognise their right to paid leave. The fact that Mr Smith had taken unpaid leave did not release Pimlico from the obligation to provide paid leave. Mr Smith’s right to paid leave accrued throughout his engagement to termination and his claim was therefore in time, being within three months of termination.

What should employers take from this decision?

Employers may see a rise in the number of WTR claims for unpaid or untaken holiday brought by workers who have been mistakenly categorised as independent contractors, or indeed those in the ‘gig economy’. Moving forward, employers should:

  1. Be clear in contract, and in practice, about the status of the person they are engaging.
  2. Be aware that the burden is on them to show that it exercised all due diligence in order to enable the worker to take the paid annual leave to which they are entitled.

It is of some comfort that the decisions in Pimlico and King only apply to claims for paid leave under the WTR, and not claims for unlawful deduction from wages or payment in lieu of untaken holiday in the year of termination. Equally, they would not apply in any case of underpaid holiday.

The boundaries of worker, employee and contractor status are often blurred; if you are in doubt about the status of anyone you are engaging and the rights they are entitled to as a result you should seek expert advice.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.