Unpaid Holiday Pay Claims – One Worker's Battle


The Law Of… Getting Paid Fairly

Joy Drummond, Partner in Employment Law, investigates an ongoing case over a worker's right to receive paid holiday.

A ruling is expected to be made by the European Court of Justice which has the potential to change the nature of holiday pay claims for workers and employers across the UK.

Background To The Case       

In June 1999, Mr King started working as a salesman for Sash Window Workshop (SWW). He was paid on a commission-only basis and didn't have the contractual right to receive paid holiday.

In 2008, Mr King was offered a contract of employment by SWW, which included the right to receive paid holiday but he didn't accept it. He continued working for the company up until October 2012, when he was dismissed. After leaving the business, he then made a claim for holiday pay, as well as other claims.

An Employment Tribunal concluded that Mr King was a 'worker' under the Working Time Regulations 1998 and it found that he was entitled to holiday pay, as a series of unlawful deductions from wages.

Unhappy with the Tribunal's decision that Mr King was entitled to holiday pay for all leave to which he had been entitled while working for SWW, but had not taken (as it was unpaid), SWW appealed the case to the Employment Appeal Tribunal (EAT). The EAT sent the case back to the Employment Tribunal for reconsideration, including on the question of whether Mr King had been prevented “for reasons beyond his control” from taking his leave.

An appeal was made by Mr King to the Court of Appeal, which then asked for clarification on several issues of EU law from the European Court of Justice (CJEU). At this point in time, the case is still ongoing. The Advocate General has given this Opinion and a decision is yet to be made by the CJEU.

What Does The Law Say About Time Limits For Holiday Pay?

Under the Working Time Regulations 1998 (WTR), the time limit for bringing a claim is 3 months from when the paid holiday was not granted or the correct payment for holiday leave should have been made. This means that underpayments of holiday pay occurring more than 3 months ago are out of time under the WTR.

However, under the Employment Rights Act 1996, a claim for unlawful deduction from wages must be brought within 3 months of the date of the underpayment/deduction, or, in the case of a series of deductions, within 3 months of the last of those deductions. This includes claims for a series of underpayments of holiday pay going back years in some cases.

In Bear Scotland Ltd and ors v Fulton and ors and other cases 2015 ICR 221, the Employment Appeal Tribunal found that at least some types of overtime pay fall to be included in the calculation of holiday pay – this was a welcomed finding.

But, the EAT also held that in unlawful deduction of wages claims, if there is a gap of more than 3 months between any two deductions in the chain, the 'series' of deductions is broken, thus preventing back payments from before the gap in all types of unlawful deduction claims (whether related to holiday pay or otherwise).

In Joy’s view, "This finding was novel, thinly reasoned, and an unjustified gloss on the statutory wording".

"It is hard to see it as anything other than a finding made for reasons of policy to limit claims resulting from the findings on the inclusion of some overtime pay in the calculation of holiday pay."

"Following the Bear Scotland decision in November 2014, there was an outcry from employers, who for years have been taking the risk of underpaying holiday pay", Joy adds.

"They raised concerns about how much this was going to cost their businesses."

In response, to supplement the limit on backdating holiday pay claims where there is a gap of more than 3 months in the series of deductions in the EAT decision, just before Christmas 2014 the Government rushed through the Deduction from Wages (Limitation) Regulations 2014 SI 2014/3322, which came into force on 8th January 2015.

The Regulations impose a 2-year limitation not only on holiday pay claims but also on most claims for unlawful deductions from wages for other types of underpayment of wages. (This new limitation period applied to claims made on or after 1 July 2015.)

Denying Billions Of Workers Holiday Pay

Unpaid holiday pay is a serious issue within the UK. A Trust for London report recently revealed that:

  • £1.5billion in holiday pay remains unpaid every year
  • 1 in 20 workers don't get paid holidays, which is unlawful

There has also been a substantial drop in unlawful wage deduction claims since the issue fee of £160 was introduced.

How Has This Case Changed Things?

Mr King's case shows that it's possible that the right to a backdated payment for holiday pay could arise when the employment ends.

In his opinion in C. King v The Sash Window Workshop Ltd Case C-214/16, the Advocate General says that if a worker does not take all or some of the annual leave to which they are entitled in the leave year when it falls due to be taken, because the employer refuses to pay them for any holiday they take, the worker can claim that they are prevented from exercising their right to paid leave.

Also, this right carries over until the worker is allowed to take the paid leave or their employment comes to an end. In either case, they are entitled to pay in lieu of all the paid annual leave that has not been taken up until that date.

The Advocate General did not specify any limit to the carry-over period following the end of the holiday year in which leave can be accrued.

If followed by the CJEU, this would mean that a worker who did not take some or all of their entitlement to paid holiday because they would not be paid for it by their employer can claim for payment for this holiday going back over all the years of employment. This applies even if they didn't ask to take the leave at the time (because they wouldn’t be paid for it) when they leave their employment.

This would put out of kilter the limitation to back pay for unlawful deduction of wages claims imposed by the EAT’s decision in the Bear Scotland case and the Deduction from Wages (Limitation) Regulations.

"If claims for back payment for underpaid holiday pay can go back indefinitely when the leave was not taken because the employer did not at that time facilitate paid holiday, why should other types of holiday pay claim, or other types of unlawful deduction of wages claims for other shortfalls in pay, be limited to 2 years of back pay?" Joy comments.

"Why should back pay claims be limited to where there is no more than a 3-month gap between underpayments?"

"Could this even challenge the requirement for there to be a 'series of deductions' for underpayments more than 3 months ago to be claimable?"

The Advocate General of the CJEU stated that employers have to provide an "adequate facility" for their workers to be able to use their right to paid annual leave (which falls under the EU Working Time Directive).

With this point in mind, if an employer offers some pay – but not full pay – to workers who take leave is the employer providing an "adequate facility" for these individuals to take their leave? It appears that this might not provide an adequate facility for workers, which could mean that they could be entitled to reclaiming lost holiday pay for holiday not taken. 

This case has serious consequences for employers going forward, as since 1998 any employer who has paid its current members of staff a lower rate of pay than what they would have received when at work could face a series of claims for unpaid holiday pay during that period.

Employers who have categorised their workers as self-employed in order to reduce their expenses (by not paying holiday pay) could also find themselves at the receiving end of multiple claims for back pay.

James Williams, a barrister at Henderson Chambers who is representing Mr King pro bono (instructed by Goodman Derrick), comments for Simpson Millar:

"If the Advocate General’s opinion is followed by the Court, businesses may face a large number of claims by any classified as self-employed seeking to argue that they are actually workers and thus entitled to holiday pay dating back to 1998. Employers who have been complying with their obligations to offer paid leave to all workers under the Working Time Regulations should not be affected, provided that the pay offered during leave was equivalent to the pay the worker would have received when at work."

Joy comments:

"The findings in this case will undoubtedly change the nature of holiday pay. It could mean that workers are paid more for annual leave and could give more clarity about the rights different types of workers have to holiday pay."

"This case also has much wider repercussions for other claims, for example it could arguably be directly applied to recover underpayments of holiday pay on the termination of an individual's employment going back as far as 1998 and for other types of underpayment of wages claims."

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