The approach to holiday pay after the decision in King v Sash Window Workshop Ltd 2017

At the end of last year, the European Court of Justice in King v Sash Window Workshop Ltd 2017 handed down a landmark decision in relation to holiday pay.

The facts of the case can be summarised as follows:

• Mr King (K) worked for The Sash Window Workshop Ltd (SWW) as a commission-only salesman for 13 years.
• K received no salary, and was never paid for any holidays or periods of sickness absence.
• After nine years, SWW offered K an employment contract under which he would be entitled to paid annual leave. K refused.
• SWW terminated K’s contract when he reached 65 years old.
• K brought claims for age discrimination and unpaid holiday pay in the Employment Tribunal.
• K stated that he had not taken his full annual leave entitlement each year because it would have been unpaid.

Summary of background legislation

Article 7(1) of the Working Time Directive (2003/88/EC) provides that every worker is entitled to at least four weeks of paid annual leave. Article 7(2) provides that a payment in lieu of annual leave may only be made on termination. These rights are reflected in UK legislation at regulations 13 and 16 of WTR 1998.

Regulation 13(9) of the WTR 1998 provides that a worker’s annual leave entitlement 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.

The issues raised in the ECJ surround the right to four weeks paid annual leave, not unlawful deduction from wages.
The distinction is that the legislation regarding unlawful deduction from wages stems from the worker taking holiday but not getting paid for it – the longstop date in this type of case is two years. The paid annual leave entitlement revolves around workers who have not taken annual leave because they have been led to believe that it will not be paid.

An unlawful deduction from wages claim must be brought within three months of the last deduction or series of deductions, for a maximum of two years.

A right to annual leave claim can be brought within three months after termination of the employment contract and is not limited to two years.

Advocate General’s opinion

To summarise, the Advocate General found that:

• If a worker has not taken some/ all of their annual leave entitlement because their employer refuses to pay them when they take such leave, the worker is entitled to claim that they have been prevented from exercising their right to paid leave. If this is the case, the right carries over until the worker has the opportunity to exercise it.
• Unless an adequate facility for the exercise of the right to paid annual leave has been provided, the allowance due to the worker on termination under Article 7(2) of the Directive should cover the full period of employment.

A Member State should only put a limit on the carry-over period of annual leave if an employer has provided an adequate facility for its employees to exercise their right to take paid annual leave. In K’s case, the UK courts may decide that the 2008 offer of employment contract amounted to an adequate facility.

ECJ judgment

The ECJ handed down its decision on 29 November 2017. The Court went further than the Advocate General’s opinion. In finding for Mr King, the ECJ held that if a worker was not paid for his annual leave, it was not compatible with the Working Time Directive 2003/88 to require him to take unpaid leave first to establish his right to paid leave, or to prevent him (on termination) from claiming a payment in lieu back to the start of the employment relationship.

James Williams has been acting for Mr King since the start of the case in 2012. He commented: “this decision will be of great significance to many workers wrongly categorised by their employers as self-employed. In the short term they should now be able to bring, on termination of their engagement, a claim for all holiday pay that they should have been paid during the working relationship. In the longer term, the decision should reduce the financial incentive for employers to deny that their staff are entitled to pay-since if the employer gets this wrong, it must compensate accordingly.”

For further information please contact the Employment team.