In a major development for the gig economy, the Court of Appeal in Smith v Pimlico Plumbers has held that a worker who takes holiday but is not paid for it can carry over the right to take such paid holiday until the end of their engagement. We look at the facts of the case and the implications for employers.

What did the case involve?

This long-running dispute involved a plumber (Mr Smith) who brought several employment tribunal claims in relation to the time he spent working for Pimlico Plumbers as a plumbing and heating engineer from 2005 until 2011.

Throughout his engagement with Pimlico, he had been treated as a self-employed contractor and not an employee or other type of worker (who have a statutory entitlement to 5.6 weeks’ paid holiday per year). He took time off but was not paid for it.

The first case in the dispute concerned whether Mr Smith was genuinely self-employed or if he was in reality a “worker”, which would entitle him to various statutory employment rights, including paid holidays. The case concluded in Mr Smith’s favour in 2018, when the Supreme Court held that he was a worker and could take his outstanding holiday pay claim to the employment tribunal.

The holiday pay claim ended up in the Court of Appeal, which has now in its recent judgment addressed some thorny issues relating to the statutory right to paid holiday. By way of reminder, workers and employees are entitled to:

  • 4 weeks’ paid holiday per year, derived from the EU Working Time Directive (WTD Holiday);
  • 1.6 weeks’ paid holiday, derived from the UK Working Time Regulations 1998 (WTR Holiday); and
  • additional contractual paid holiday, but only if this is set out in their employment contract or other agreement.

It is worth noting that the decision relates to WTD Holiday, not WTR Holiday or additional contractual holiday.

The Court of Appeal held (overturning the decision of the EAT below it) that the European Court of Justice case of King v The Sash Window Workshop Limited applied to Mr Smith, despite a difference in the factual background of the two cases.

In King, the claimant had not been permitted to take any holiday at all, whereas Mr Smith had taken holiday but had not been paid for it. Nevertheless, both workers were entitled to the single composite right to paid annual holiday and this should not be subject to any preconditions.

Where an employer fails to pay a worker during any time off taken as holiday, the worker is not exercising the right to take genuine holiday, with the opportunity for rest and relaxation that entails. In those circumstances, the right to take paid holiday will remain outstanding and continue to accrue. It is only if the employer can demonstrate that it (a) specifically gave the worker the opportunity to take paid holiday; (b) encouraged the worker to take it; and (c) told the worker that the holiday would be lost if not taken, that the right will be lost at the end of a holiday year.

Importantly, the Court of Appeal also gave a “strong provisional view” (which is persuasive but not binding) that the current EAT authority on unlawful deductions claims and holiday pay is wrong. The Court disagreed with the stance taken in Bear Scotland Ltd v Fulton that a chain of unlawful deductions from wages by an employer (i.e. a repeated failure to pay for holiday) is broken by a gap in non-payment of more than three months. It is therefore possible that a worker could convince the court in a future EAT case to change its previous decisions in favour of the “view” now expressed by the Court of Appeal.  

What does it mean for employers?

Employers who operate in the gig economy, such as those operating technology platforms to provide a particular service (for example food delivery or transport), will be particularly affected by this development. The engagement of staff on a purportedly self-employed basis is a common aspect of the business model for such companies.

However, recent cases (such as Uber BV v Aslam) which have clarified the law in relation to worker status have also cast considerable doubt over the viability of such business models. Employers who engage skilled self-employed consultants (e.g. IT specialists) will also face similar issues. In both cases it is advisable to conduct a workforce audit, to ensure that any previous assessments of whether or not the individual contractor has worker status remain valid.  

The Smith case certainly highlights the financial implications of getting worker status wrong. A persistent refusal to allow a worker to take their annual paid holiday entitlement due to a dispute over status could soon accrue into a hefty claim if the employer is found to be wrong. That said, if an unlawful deduction from wages claim is brought (which was not the way Mr Smith pleaded his case), the statutory two-year limit on back-dated holiday pay may assist.

Finally, employers should also keep in mind that workers have additional employment entitlements, such as in relation to pension contributions, the national living wage, and discrimination and whistleblowing rights.  

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