Case Update: Significant Win For Workers In Holiday Pay Claim

• Under the Working Time Regulations 1998 (WTR), workers are entitled to 5.6 weeks' paid holiday per year, made up of 4 weeks’ leave derived from the Working Time Directive (Euro-Leave) and an additional 1.6 weeks' leave under the WTR. 
• The WTR originally stated that holiday had to be taken in the holiday year in which it was due and could not be paid in lieu save upon termination (Regulation 13(9), the "use it or lose it" provisions) but European case law has held that Regulation 13(9) must be read and interpreted to allow carryover of Euro-Leave in certain circumstances, such as when workers are on maternity leave, do not wish to take holiday during a period of long-term sick leave or are unable to take holiday for other reasons beyond their control.
• In King v The Sash Window Workshop Limited (2017) (King), the ECJ ruled that workers who are denied the right to take paid holiday are entitled to bring claims for their accrued but untaken holiday, with no requirement to have already taken the holiday on an unpaid basis. The ECJ held that this right accrues and carries over without limitation.
• Workers who have been denied the right to receive paid holiday or whose holiday pay has been underpaid can claim under the WTR within three months of the relevant breach or bring an unlawful deduction from wages claim under the Employment Rights Act 1996 (ERA) within three months of the last of the ‘series’ of unlawful deductions.  In an unlawful deduction from wages claim, there is a two-year limit on any back payments for claims lodged on or after 1 July 2015.

This is round two of Mr Smith's long running dispute with Pimlico Plumbers.  In 2018, the Supreme Court held that he was a worker which meant that he was entitled to 5.6 weeks' paid holiday.  However, during his six-year engagement with Pimlico Plumbers he was not given any entitlement to paid holiday.  Although Mr Smith took holiday, it was always unpaid.  When his contract was terminated he brought proceedings in the employment tribunal alleging, among other things, that he was a worker and entitled to paid holiday throughout the engagement and therefore seeking compensation.  This appeal, however, only applies to Mr Smith's Euro-Leave (see "Background" above).  

Mr Smith's holiday pay claim was rejected by the employment tribunal and the EAT on the grounds that it was out of time, because his last period of holiday had ended more than three months before he brought his claim.  The Tribunal considered whether the principle in King entitled Mr Smith to claim for all unpaid holiday accrued throughout his engagement, payable on termination, but held that Mr Smith's claim was distinguishable from King because that case concerned a worker who had been deterred from taking holiday altogether because it would have been unpaid.  The EAT agreed and held that King only applied in respect of leave that had not been taken, not to situations where a worker had taken leave which was unpaid.

The Court of Appeal upheld Mr Smith's appeal.  It held that: 

1. The principle in King also extends to workers who have been forced to take unpaid holiday.  The ECJ in King had held that the right to paid holiday is a single composite right and the right to holiday and the right to payment for holiday are two aspects of that single right.  It had also emphasised the importance of the right to paid holiday and that there can be no preconditions whatsoever to it.  So, an employer who does not allow a worker to exercise the right to paid holiday must bear the consequences.  The purpose of the right to paid holiday (and to be paid when the holiday is taken) is to ensure the worker has the requisite rest and relaxation for their health and safety.  An employer cannot be allowed to benefit from not paying for holiday to the detriment of the worker's health.

2. On the question of whether Mr Smith's claim was in time, domestic law can provide for the loss of the right at the end of each holiday year.  To lose it, the worker must actually have had the opportunity to exercise the right and the employer must be able to show that it: 

a. specifically and transparently gave the worker the opportunity to take paid holiday;

b. encouraged the worker to take paid annual leave; and 

c. informed the worker that the right would be lost at the end of the leave year.  

Where the employer cannot show that, the right does not lapse but carries over and accumulates until termination when the worker is entitled to a payment for the untaken leave.  That is what happened here and Mr Smith's claim was in time because it was made within three months of the termination of his engagement.

Whilst not strictly necessary (because Mr Smith succeeded in his claim under the provisions of the WTR rather than as an unlawful deductions claim), the Court of Appeal nevertheless went on to consider the issue of whether, for the purposes of an unlawful deduction from wages claim, a series of deductions is broken by a gap of three months or more.  In Bear Scotland v Fulton (Bear Scotland) the EAT held that a gap of more than three months did break the gap, whereas the Northern Ireland Court of Appeal in Chief Constable of Police v Agnew (Agnew) reached the opposite view.  The Court of Appeal gave a strong provisional (obiter) view that Agnew is correct.  It did not support the reasoning put forward in Bear Scotland but rather considered that the "identification of a sufficient factual and temporal link between deductions will answer the question whether there is a "series" without the need to imply or infer a limit on the gaps between particular deductions".