Smith strikes again as Court of Appeal overturns previous decisions on holiday pay
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
9 March 2022
Justine Riccomini explains why the latest case between Mr Smith and Pimlico Plumbers impacts on holiday pay for workers.
After 11 years of being engaged in a legal battle with his ex-employer Pimlico Plumbers, Gary Smith has won his final claim in the suite of different claims he has made against the company. This latest decision by the Court of Appeal, which was handed down on 1 February 2022, concerns itself with holiday pay, and the decision has reversed the decisions in both the EAT and ET. The result is that Mr Smith is now entitled by way of a binding precedent to recover compensation for all the unpaid leave he has taken since his employment started at the rate of pay he was receiving at the time. This has happened because in 2018, the Supreme Court deemed Mr Smith to be a ‘worker’.
How the decision came about
The judiciary was unanimous in its decision to uphold the principles laid down in King v Sash Window [2018] ICR 693 (an ECJ case) which not only entitles workers to claim the indefinite carry over and accumulation of the untaken part of their so-called ‘Euro leave’ (i.e. 4 weeks per annum) but also to any of that Euro leave which was taken, but was not paid.
Essentially, this means that Mr Smith has been given the right to claim unlawful deduction of wages arrears for up to 4 weeks of the leave he took each year, but was not paid for, at the rate of pay payable in respect of the work he was doing at that time.
Isn’t there a limit on the amount of years a worker can claim for unpaid leave?
There is no restriction on the period of Euro leave which can be accumulated because the 2-year limit set out at s.23(4A) of ERA 1996 was set aside by the Court of Appeal – so the employee is not time-barred in the claim they make – unlike with other claims such as Statutory Sick Pay – and the liability for that payment crystallises on termination of employment as long as they bring a claim within 3 months of termination. This will make things much easier [for tribunals] going forward because no-one will have to work out what was taken/untaken/unpaid – it’s 4 weeks per annum, full stop, if they are a ‘worker’.
It may be that the claimant could also claim interest on the unlawful deduction (see Marshall No.2 [1994] QB 126).
What about claims brought post-Brexit?
In this case, Smith brought his case before Brexit Implementation Period Completion Day on 31/12/2020. This means that the application of the King v Sash Window principles was unquestionable.
But what about post-Brexit claims – can ECJ case law still apply to them?
There are some EU legal principles which point to the Marleasing principle (summarised well in a 2019 Aston University academic paper), a duty to preserve the interpretations placed by the EU directive in accordance with s. 5 EU Withdrawal Act 2018 as far as possible. So, while legal eagles might be trying to find ways to interpret things differently post Brexit, Marleasing seems likely to stand for the time being, which is important for workers bringing cases like this one to the Tribunal post-Brexit.
In addition, under the Working Time Regs. Reg 30, the ERA 1996 provides for someone to claim unlawful deductions from wages within 3 months which are due under WTR. HMRC v Stringer [2009] ICR 985 supports this.
Although Pimlico Plumbers could seek to overturn this decision at the Supreme Court, it seems unlikely. The founder of the company Charlie Mullins has recently sold the business to another entity and they (a US group) may not be interested in engaging with the UK courts so early in their tenure. As things stand, Mr Smith is owed in the region of £74,000.
What does this mean for employers, payrollers and agents?
In the words of the presiding Judge Lady Justice Simler, provided the employer, “...can specifically and transparently show that they gave the worker the opportunity to take paid annual leave, encouraged the worker to take paid annual leave and informed the worker that the right would be lost at the end of the year.”
However, if the employer cannot show these specific actions have been taken, workers who have historically been denied any kind of claim for unpaid leave now have a pathway to claim an unlawful deduction of wages, provided they make the claim within 3 months of their leaving date.
Conclusion
If an individual can establish that they are legally classified as a worker, whether the employer agrees or not, the cost could be heavy. Employers and their agents should take the opportunity to review the employment status of anyone working as a self-employed contractor and take advice from a suitably qualified employment law practitioner or an organisation such as ACAS.