Enforcement of paid annual leave under Working Time Regulations is defective

King v Sash Windows Workshop Ltd

The means of enforcing rights to paid holiday in the Working Time Regulations is incompatible with EU law according to the European Court of Justice. Employers must give workers the facility to take paid holiday, workers do not have to take holiday to be able to claim payment for it, refusal to pay is considered as ‘prevention’ and workers can claim unpaid holiday for the whole of their employment or up to the date when paid holiday was offered, whichever is the earliest.

The law

Regulation 13(9) of the Working Time Regulations (WTR) specifies that holiday cannot (unless agreed in the contract) be carried over from one leave year to the next.

The principle of ‘no carry over of holiday’ was modified by the Court of Appeal in NHS Leeds v Larner in 2012, so that if a worker is prevented through illness from taking their holiday in one year then they must be able to carry it over. Although this is theoretically indefinitely, the ECJ confirmed in a German case, KHS v Schult, that if the holiday is not taken within 15 months it could lawfully be forfeited.

The WTR also specifies that entitlement to holiday cannot be replaced by a payment in lieu except if the worker’s employment is terminated, and only at that stage is the worker entitled to a payment in respect of accrued but untaken leave (reg. 14) The idea behind outlawing payment in lieu other than on termination is that workers should be forced to take holiday from a health and safety perspective.

A worker wanting to claim for holiday pay can do it in one of two ways. In a tribunal within three months of the non-payment (WTR, reg. 30) or in a tribunal as a claim for unlawful deduction from wages under the Employment Rights Act 1996. This is more attractive as repeated failures to pay can be treated as a ‘series of deductions’ (HM Revenue & Customs v Stringer) which means that the claim must be brought within three months of the last deduction – which in this case was termination of employment. The holiday pay case of Fulton v Bear Scotland said that a gap of over three months between deductions will break the chain, and from 8 January 2015 new legislation prevents new claims going back more than two years from the date of issue.

Background

In this case Mr King was a commission-based salesman categorised as self employed by Sash Windows. He was found by a tribunal to have been a worker. Because he was self-employed Sash Windows did not pay him for holidays and so whilst he took some unpaid holiday in a year, he did not take all of his statutory entitlement because he could not afford to. When he left the business, a tribunal awarded him his accrued holiday pay for the current year, payment for his unpaid holiday pay for previous years and, controversially, payment in lieu of untaken leave that he said had accrued in previous years. The tribunal said they saw no difference between a worker being unable to take paid leave due to sickness and a worker being denied paid leave.

The EAT agreed that the ‘Larner’ principle could be extended to when a worker who is unable or unwilling to take holiday for reasons which are beyond his control, for instance if he will not be paid for his leave so cannot afford to take it, may be entitled to carry-over the holiday entitlement. However, there were no detailed findings of the tribunal on the reasons why holiday was not taken and so the case was sent back to the tribunal to consider this point.

However, where they disagreed with the tribunal was that this was a series of unlawful deductions for which Mr King should be paid on termination. They pointed out that as Mr King had actually worked and been paid for it, there was no ‘deduction’ and what he had lost was a health and welfare benefit. Even if they were wrong on this, the tribunal had not considered whether this was a ‘series’ of deductions in accordance with Bear Scotland, namely had there been a break of three months between holidays. The Court of Appeal referred various questions to the European Court. The Advocate General’s Opinion supported Mr King’s claim. The full court has now given its decision.

ECJ decision

  • Employers must provide adequate facilities for their workers to exercise their right to take holiday and workers should not be compelled to take legal action to establish this right.
  • Workers should not be required to take leave without pay and then have to bring a legal claim in order to be paid for that leave period.
  • If a worker does not take holiday because he will not be paid for it then this is being ‘prevented’ from taking it and the right carries over until he is given a facility to take the paid holiday or leaves, whichever is earliest.
  • A worker prevented from taking leave can, on termination, claim backdated holiday pay for the whole of his employment.
  • National restrictions on the accrual of leave will only apply once workers have been given the facility to take paid holiday.
  • The limits on accrual of leave during long-term sick leave is distinguishable from Mr King’s case (and that of workers generally). This was because his rights to paid holiday was not connected to a situation where his employer was faced with periods of absence. The ECJ noted that in fact his employer benefited from Mr King not taking leave.
  • The onus is on the employer to find out all relevant information regarding their obligations on paid leave.

Link to judgment: http://www.bailii.org/eu/cases/EUECJ/2017/C21416.html

Comment

This decision applies only to the 20 days holiday not the 28 days under the UK law. Practically this decision will be welcomed by workers who are seeking compensation for the holiday they accrued or should have accrued - and employers would be well advised to review whether any of their workforces are potentially affected as well as checking their practices towards workers or indeed anyone who is labelled a contractor but could be a worker for legal purposes.

It seems likely that the UK legal limitation for such claims (currently limited to two years provided there is no break in deductions for more than three months) will be challenged in the courts by unions and/or workers.