United Kingdom: Unpaid holiday still counted as holiday

In brief

In Smith v Pimlico Plumbers, the Employment Appeal Tribunal (EAT) has rejected a worker's claim for several years' holiday pay. In doing so, the EAT held that holiday which is taken but unpaid still counts as statutory holiday and the usual time limits apply to a claim for pay in respect of the holiday. The position is different where an employee is deterred from taking holiday because it is unpaid. This decision is likely to be of most interest to organisations that might face worker misclassification challenges from independent contractors, because they are not normally offered paid holiday.


Contents

Key takeaways

  • Affected employers: Most employers pay their workers holiday pay, albeit that there are sometimes disputes about whether holiday pay has been correctly calculated. Cases of unpaid holiday are likely to arise where the individual has been misclassified as an independent contractor, and so deemed ineligible for statutory paid holiday entitlement. This was the situation in Mr Smith's case, which previously went to the Supreme Court in 2018 to decide whether he was a worker (see our article here). The decision will limit potential exposure of employers to holiday pay claims from employees who have actually taken their holiday, but without pay.
  • Was holiday taken or not? - This judgment creates a distinction between cases where the worker has not taken holiday because the employer refuses to pay it, and cases where the worker has taken the holiday, albeit unpaid. In the first situation, the ECJ decision in King v Sash Windows (which forms part of retained EU law post-Brexit) allows the worker's holiday entitlement to carry forward year on year, without limit and be paid in lieu of any holiday still untaken when their employment terminates (see here for more information). The EAT has now said that the same principles do not apply where the holiday has been taken, even though unpaid. A worker in those circumstances therefore cannot claim several years' worth of holiday pay.
  • Claims covering preceding two years still allowed: The EAT's judgment does not affect claims covering unpaid holidays in the two years preceding the date of the claim, provided there isn't a break of more than three months between the periods of statutory holiday. The two-year cut-off was introduced in 2015 and the three-month gap rule arose from the Bear Scotland litigation, in 2014 (see here for more information on that judgment).
  • Watch this space …: Holiday pay has been the subject of much case law. An appeal by Mr Smith wouldn't be surprising because the EAT thought his arguments had merit, albeit ultimately rejecting them. In addition, the three-month gap rule is due to be considered by the Supreme Court in June this year, in an appeal against the decision in Chief Constable of Northern Ireland v Agnew (see here for more information).
  • Action points for employers: The main takeaway is to ensure that your organisation has systems in place to check that individuals are correctly classified as employees, workers or genuine independent contractors. If an employee or worker, they need to be paid for their statutory holiday entitlement. Where a worker is taking holiday but not being paid, employers should make provision for a claim worth up to two years of holiday pay. It is possible that future appeals will extend the scope of employers' liability in this field.
Contact Information
James Brown
Knowledge Lawyer at BakerMcKenzie
London
james.m.brown@bakermckenzie.com
Rachel Farr
Senior Knowledge Lawyer at BakerMcKenzie
London
rachel.farr@bakermckenzie.com
Mandy Li
Knowledge Lawyer
London
mandy.li@bakermckenzie.com

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