The Court of Appeal has handed down its decision in the latest instalment of the long-running Pimlico Plumbers employment status litigation, which deals with the issue of accrued holiday pay entitlement for individuals found to be ‘workers’ rather than independent contractors.
Smith v Pimlico Plumbers  EWCA Civ 70
Mr Smith, a plumbing and heating engineer, was found by the Supreme Court in 2018 to be a worker rather than a self-employed contractor as claimed by Pimlico Plumbers. This meant that he was entitled to take paid holiday under the Working Time Regulations 1998 (WTR).
Mr Smith’s claim returned to the employment tribunal to determine the amount of holiday pay he was entitled to receive. The employment tribunal held that his claim was out of time as it had not been brought within three months of his last period of holiday. It also found that he could not carry forward an entitlement to holiday pay, when on the facts he had taken periods of unpaid holiday. This decision was upheld by the EAT in 2021. Mr Smith appealed to the Court of Appeal.
Court of Appeal decision
The Court of Appeal has upheld Mr Smith’s appeal, finding that he could claim in full in respect of his unpaid holiday entitlement, going back to the start of his contract.
The Court held that in accordance with a previous ECJ decision in the case of King v Sash Window Workshop Ltd, the right to take annual leave under the EU Working Time Directive was a single, composite right to paid leave rather than separate, distinct rights to take leave and to be paid for it. The failure by an employer to remunerate leave at the time it is taken means that there has been a failure to ensure the worker has benefitted from the rest and relaxation that goes with paid annual leave.
Mr Smith had not been permitted to take paid leave, therefore he was entitled to receive payment in lieu of his four week basic entitlement to paid holiday (as provided under the Directive) on termination of his contract. A claim in respect of this entitlement must be brought within three months of the date of termination, so Mr Smith’s claim was not out of time.
Consequences of this decision
Subject to any further appeal in this case, the Court’s decision will potentially have expensive consequences for employers who have misclassified ‘workers’ as independent contractors, and have therefore not paid holiday pay.
It will be a particular issue for those engaged in the gig economy and who can demonstrate that they have ‘worker’ status. The right to holiday pay in respect of the four weeks of leave under the Working Time Directive will accumulate from year-to-year and will be payable on termination. The two year backstop period applicable to unlawful deductions from wages claims would not apply in these circumstances.
While not material to its decision in this case, the Court also commented on the question of whether a period of three months or more would serve to break a series of deductions for the purposes of an unlawful deduction from wages claim. This had been the conclusion of the EAT in a previous holiday pay case, Bear Scotland Ltd v Fulton. The Court of Appeal expressed the view that a three month period would not break the chain in a series of deductions, and there was no basis to infer from the wording of the legislation that Parliament had intended a chain to be broken by any fixed period. This is something that will no doubt feature in future litigation, but could make it easier for workers to make claims for periods of underpaid (rather than unpaid) holiday entitlement.
These articles are from the February 2022 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. For further information please contact a member of Birketts’ Employment Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2022.