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Companies to Face Potential Holiday Pay Claims Following Recent ECJ Decision

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This article has been submitted by Greenaway Scott

If you’re deemed to be self employed, but your contract is terminated, can you claim compensation for any holiday you wrongly didn’t believe you were entitled to?

The answer, according to the European Court of Justice (ECJ), is yes.

The ECJ has ruled that workers are entitled to be paid on termination for any periods of annual leave accrued during employment, where the worker has been discouraged from taking that leave because it would have been unpaid.

There was no limit on the amount of leave that could be carried over in these types of cases.

In a recent case, Mr King was believed to be self-employed for 13 years, and his ’employer’ therefore did not provide any paid holiday.

An employment tribunal (ET) held Mr King was a worker and therefore entitled to paid holiday. Mr King argued he hadn’t taken his annual leave entitlement because it would have been unpaid.

The ET awarded him holiday pay in respect of untaken leave accrued in the final year; leave requested and taken as unpaid leave in previous years; and leave accrued but untaken in previous years. The employer appealed the decision but the ET held that if a worker has not taken annual leave because their employer refuses to pay them for it, the worker has been prevented from exercising their right to paid leave. If this is the case, the leave is carried over until the worker has the opportunity to exercise that right, or until termination.

The ECJ held that, where a worker has not exercised their right to paid holiday over several years because their employer wrongly failed to provide holiday pay, the worker is allowed to carry over their paid holiday rights until the termination of employment. This decision will have major implications for workers misclassified as independent contractors, potentially resulting in the right to years of unpaid holiday pay and increasing the stakes in the “gig economy” cases.

Employers may be required to pay large amounts to workers on termination for unpaid holiday as well as the holiday they have been discouraged from taking because it would have been unpaid. Even if employers start offering paid holiday going forward, liability for the past untaken holiday would remain and would be payable on termination of employment.

The matter will now return to the Court of Appeal which will have to decide whether the Working Time Regulations (WTR) can be interpreted consistently with the ECJ’s ruling. This ruling will only apply to the four weeks’ leave derived from the Working Time Directive, not the additional 1.6 weeks available under the WTR.

This case only applies where workers have not taken annual leave because they have been led to believe it will not be paid. It does not address the scenario where workers have taken leave but have not been paid or have been underpaid for it. This case also does not address whether the domestic limitation rules would continue to apply to claims for unpaid holiday pay (i.e. the two year limit in respect of claims for unpaid holidays).