In Smith v Pimlico Plumbers, the Court of Appeal held that a worker who had taken holiday but not been paid for it because he had been wrongly categorised as self-employed was entitled to be paid on termination for all the unpaid holiday that he'd accrued (taken or not) throughout his six-year engagement.
The case has implications for businesses operating in the "gig economy" as well as mainstream businesses who engage self-employed contractors or where there is uncertainty or a dispute over worker status.
IMPLICATIONS
The financial consequences of this ruling for employers are significant. Businesses with workers who have previously been classified as self-employed could face huge costs for accrued holiday pay and those employers who are at risk of claims for employment status from self-employed staff must now factor in the additional risk of historic holiday pay claims.
This case also exposes the limitations of the two-year backstop brought in to limit the past recovery for unlawful deductions from wages where there has been a series of deductions, because this will only apply to claims brought as unlawful deductions claims. As this case demonstrates, individuals who are denied rights to paid holiday in circumstances where King applies can claim under the WTR for payment for all the untaken and taken Euro-Leave in the past without any backstop, subject only to the requirement to bring their claim within 3 months from the date of termination of their engagement. Until we have further clarity from the courts, it would be prudent to reassess any liability for historic holiday pay within your business and factor this in to the assessment of any current or potential claims.
And where does it leave us with Bear Scotland? For the time being, the 3-month gap rule remains binding on tribunals but the effect of the Court of Appeal's strong provisional view is yet to be seen and for businesses moving forward it is no longer wise to rely on it until we have greater certainty.
Many employers will be concerned about the implications of this ruling and it serves to reinforce the need for employers to classify workers correctly, ensure provision of the appropriate rights at the outset and update policies and practices where appropriate. It also demonstrates the importance of good employment practice, in particular, for employers to allow workers to take paid holiday, to warn that holiday will not carry over and not to do anything to deter or prevent workers taking their paid holiday. For businesses which are vulnerable to potential claims, this would be a good opportunity to review the options and plan accordingly. Please get in touch if you would like to discuss the implications of this decision further with us. Our team has extensive experience of advising in this area and can assist in helping you to review what this decision means for your business and how best to mitigate any future costs or liabilities.
With legislation for the establishment of the new Single Enforcement Body in the pipeline when parliamentary time allows, the Government appears to be signalling an intention to tackle non-compliance in key areas including holiday pay for vulnerable workers either through the new Single Enforcement Body or existing agencies. With this judgment and greater government scrutiny, there will now be an added focus for employers on holiday pay compliance and the importance of calculating it correctly.
