With the ongoing debate over the gig economy and employment status, Sarah Peacock considers a recent European Opinion which could pave the way for “self-employed” workers to claim holiday pay going back several years.
Just when it seemed holiday pay was no longer trending, an Advocate General of the European Court of Justice (ECJ) has delivered an Opinion that a “self-employed” salesman, who had previously rejected the offer of an employment contract, could claim payment for holiday he took, as well as holiday he did not in fact take, potentially stretching back over 13 years.
Although not binding, the ECJ will make a final ruling in a few months, and it usually follows such Opinions. The case could radically affect employers who believe they are engaging people on a self-employed basis but who haven’t given sufficient consideration to the individual’s employment law status (rather than tax law status).
The importance of status
There are three distinct types of status in employment law: employee, “worker”, or self-employed. Confusion arises because income tax laws do not recognise the in-between status of “worker” – only employed or self-employed.
The employment law test for a “worker” is based on a contract (verbal or otherwise) where an individual undertakes to do work personally. Further factors include control over the individual, the exclusivity of the relationship, the right to send a substitute, and how much the individual bears risk/benefits from profit. Many individuals who consider themselves self-employed could in fact fall into the “worker” category. A “worker” (as opposed to the genuinely self-employed) has the right to the National Living Wage, paid holiday, rest breaks, working time limits and to be auto-enrolled into a workplace pension. Hence the publicity surrounding the ‘gig economy’ where those purporting to be self-employed may be denied these rights.
Holiday pay for a “self-employed” salesman
In King v Sash Window Workshop Ltd & another, Mr King was a self-employed commission-only salesman, according to his contract, for Sash Windows from 1999. The contract contained no provision for paid holiday. In 2008 he was offered an employee contract with holiday provisions, but chose to remain self-employed. When his contract was terminated on his 65th birthday in 2012, he successfully brought claims for age discrimination and unpaid holiday pay on the basis of being a “worker”.
In the ensuing appeals, his “worker” status was accepted. However, Mr King asserted that not only was he entitled to pay for holiday he took, but also to backdated holiday pay for holiday he had not taken because he thought it would be unpaid. Sash Windows argued that untaken holiday over the years had been lost, and that, unlike an employee absent on sick leave, Mr King had had the opportunity to take holiday but had not taken it.
The ECJ Advocate General (AG) disagreed. In the AG’s view, it was for the employer to provide an adequate facility for exercising the right to paid holiday, not for the employee to take it without knowing whether or not he would be paid. Because the contract was silent, the employer had not provided this facility. Whether the offer of an employment contract had rectified this in 2008 would be decided by the UK court. However, for periods where there was no facility to take paid holiday, holiday carried over from year to year, potentially until 2012. Unlike untaken holiday during sickness absence, there was no limit (e.g.18 months after the end of the holiday year in which the holiday accrued) for the carryover of holiday because there was no proper facility to take it in the first place.
Why is the case important?
If the ECJ follows the Opinion, employers must now be crystal clear on the employment law (not just tax) status of staff. Those with “worker” status must be given an adequate facility to take and be paid for minimum statutory holiday. This is likely to mean provisions in contracts or similar documents. Where status is not clear, employers may wish to avoid this, but failure to spell it out for a “worker” could allow a holiday pay claim going back several years when the relationship ends.
There are still unanswered questions, such as whether this leads to double recovery (if the worker received full pay as a result of not taking holiday), and how it interacts with the UK’s two-year backstop on unlawful deductions claims. However, the thrust of the Opinion suggests that neither of these arguments would limit an employer’s exposure. The outcome of the Taylor Review will be awaited with even more anticipation.
- Unless an individual is genuinely in business on his own account, he or she may be a “worker” entitled to 5.6 weeks’ paid holiday;
- If employers do not proactively provide arrangements for paid holiday to be taken by “workers”, they could face backdated holiday pay claims when the engagement ends;
- Such claims could go back many years, and the importance of clearly establishing the employment law status of all staff should not be underestimated.
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