Holiday pay & EU law: are the working time regulations are compatible with EU law?
The Court of Appeal has made a reference to the European Court of Justice (CJEU) in a major area of importance concerning holiday pay under the Working Time Regulations 1998 (WTR).
On 9th February, the Court of Appeal considered the question of accrued but untaken holiday pay in the case, King v The Sash Window Workshop Ltd. The question for the Court of Appeal was whether a worker who is denied payment for his leave whilst working is entitled to a payment in lieu on termination for untaken leave during the course of the engagement.
Mr King’s engagement was terminated upon his reaching 65 in October 2012, after working full-time for The Sash Window Workshop Ltd (TSWW) as a salesman, paid entirely on commission, for 13 years.
He took varying amounts of holiday each year but was not paid whilst on holiday. This was because TSWW considered him to be self-employed and not entitled to paid holiday. When Mr King’s contract was terminated, he claimed pay for the holiday he had taken and pay in lieu of holiday which he had not taken throughout his 13 years of working for TSWW. He argued that the fact he was not paid for holiday meant he was deterred from taking his full entitlement.
Mr King won claims for age discrimination and holiday pay in the Employment Tribunal (ET). He was also successful in full with all three categories of holiday pay claimed and received the following awards:
- Holiday Pay 1 – payment representing the amount of holiday accrued but untaken at the date of termination for the final (incomplete) leave year;
- Holiday Pay 2 – payment for unpaid leave requested and taken in previous years, claimed as a series of unlawful deductions from wages; and
- Holiday Pay 3 – payment in lieu of the accrued but untaken leave throughout the whole period of Mr King’s engagement in respect of which no request for leave was made. The ET saw no difference between a worker being “unable” to take paid leave due to sickness and a worker being denied paid leave.
Employment Appeal Tribunal: Appeal by TSWW
TSWW made no challenge to the ET awards for Holiday Pay 1 and 2. The appeal to the EAT related to Holiday Pay 3 – the untaken leave which TSWW argued Mr King was not entitled to carry over each year. Their position was that the failure to exercise his right during the relevant leave year meant that the entitlement was lost and that Mr King could have pursued his claim for leave under Regulation 30(1)(a) of the WTR but he had failed to do so within the three month time limit for such claims.
In December 2014 in its judgment on the appeal, the EAT introduced the possibility that a worker might claim that holiday is carried over into the next year of annual leave and/or for a payment on termination of their employment in lieu of that untaken leave entitlement, in circumstances where they are unable to take their holiday for “reasons beyond their control” (and this point was remitted back to the ET for consideration in relation to Mr King’s circumstances). This effectively widens the scope of the principle established in Larner, an earlier Court of Appeal decision, relating to holiday untaken because of long-term sick leave, to other situations “for reasons beyond his control”, but unrelated to sickness.
The EAT judgment is also of interest as it held that Mr King’s injury to feelings compensation awarded by the ET should have been subject to the 10% uplift introduced by Simmons v Castle. The case was one of four EAT decisions on this point in 2015, two of which held that this uplift was not applicable to injury to feelings awards in employment tribunal cases. The Court of Appeal in King v The Sash Window Workshop did not permit TSWW to appeal on this point but an appeal in one of the other cases is expected to be heard by the Court later in 2016.
Court of Appeal
The Court of Appeal hearing in February 2016 related again to Holiday Pay 3 i.e. whether Mr King is entitled to a payment in lieu, on the termination of his engagement, for holidays to which he was legally entitled when he was working but did not take, because he was deterred from taking leave on the basis that he would not have been paid.
Mr King submits that his claim is not out of time, even though it stretches back to 1999 and the time limit for bringing a claim in the Employment Tribunal is 3 months, because the right to bring a claim for a payment in lieu can only arise on termination.
Following the hearing, the Court of Appeal made a reference to the CJEU for a preliminary ruling on the issues raised in the case.
There broadly speaking two main issues:
1. Do workers have the right to “paid leave” or is it only the right to “leave” and “pay for leave taken”?
The EU provision regulating paid annual leave is Article 7 of the Working Time Directive (WTD): the right to at least four weeks of “paid annual leave”. This provides that the leave may not be replaced by a payment in lieu “except where the employment relationship is terminated”.
The WTD was implemented in the UK by the WTR but the composite Article 7 right to “paid leave” was separated by the WTR into two distinct regulations: Reg 13 confers the right to “leave” and Reg 16 confers the right to “pay” for the leave. Reg 30 of the WTR deals with enforcement and remedies but distinguishes between claims where the worker is denied the right to time off and cases where the employer fails to pay for time taken off.
The effect of this and the logic of the EAT’s earlier decision is that, in order for a worker such as Mr King to establish the right to “paid leave”, he would have to take unpaid leave first and only after having done so could he test whether he was entitled to be paid, by bringing proceedings for unpaid wages for that leave taken. This is not an attractive course of action for a “worker” who does not have the protection of unfair dismissal laws.
This begs the question: if that is the correct construction of the WTR, is domestic law providing an effective remedy for the enforcement of the Article 7 right to “paid leave”?
2. Can leave be carried over where a worker is unable or unwilling to take leave which he would otherwise take if it were paid?
The question over this approach is whether such circumstances are analogous with sickness and being unable to take paid leave for “reasons beyond the worker’s control”. Further can there be a right to carry over leave in a situation where there is no domestic law nor any relevant contractual term which specifies a carry-over period.
Mr King is represented in the CJEU by James Williams and Professor Sir Alan Dashof Henderson Chambers, instructed by Clare Gilroy-Scott of Goodman Derrick LLP, both acting pro bono.
WHAT SHOULD EMPLOYERS BE DOING?
- Review your workforce. Do you have workers who are not receiving paid leave?
- Review the annual leave provisions in your terms with employee and workers.
- Are your contractual terms relating to carry-over sufficiently clear in circumstances where the leave has not been taken due to sickness or other reasons beyond the control of the worker?
- Are your contractual terms relating to pay for leave sufficiently clear?
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.