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Can a worker carry over holiday pay when employer had said they were self-employed?

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Can a worker carry over holiday pay when employer had said they were self-employed?

In this article, Employment Partner Paul Burton looks at the reversal of a recent case.

The case has important takeaways for employers, regarding paid & unpaid holiday and the carrying over of such annual leave.

Smith v Pimlico Plumbers

This case report follows on from my colleague Chris Dobbs’ report on an EAT decision in Smith v Pimlico Plumbers (June 2021). 

In that article Chris looked at the EAT’s decision in answering the question ‘no’ and also the fact they held the decision in Bear Scotland, a period of more than three months between holidays broke the chain in a series of deductions, was good law.

Please read that article first, to gain context regarding the below decision.

Decision reversal

Mr Smith appealed to the Court of Appeal (CA) and they have now reversed the EAT’s decision.

Lady Justice Simler cited article 7(1) of the Working Time Directive and article 31 of the Charter of Fundamental Rights of the EU, which states that the single protected right is the right for ‘paid annual leave’.

With this in mind, she came to the decision that just because the worker took unpaid leave when the employer refused to pay it didn’t mean that the worker was exercising the right to lose this leave.

What did the Court of Appeal decide?

Essentially, Lady Justice Simler decided that, in this scenario, the worker must’ve actually had the opportunity to exercise the right conferred by the Working Time Directive.

 And, the employer must be able to confirm that they:

  • encouraged the worker to take paid annual leave, and
  • informed the worker that the right would be lost at the end of the leave year

If the worker is not made aware, then their right does not disappear but carries over and accumulates until termination of the contract.

At that point, the worker is entitled to a payment in respect of the untaken leave.

When is a chain in a series of deductions broken?

Interestingly, although not legally binding as it was not part of the appeal, Lady Simler commented on the Bear Scotland decision.

She said that, had she been given the opportunity to decide on the case, she would have held that it was wrong and that a gap of more than three months should not break the chain in a series of deductions.

A specialist Employment Solicitor’s View

Paul Burton, Employment Partner at Frettens, says: “The fact the EAT’s decision has been reversed is not much of a surprise.

Especially given that, once Mr Smith was held to be a worker, it made sense that he should not be essentially, penalised for his employer not recognising his worker status correctly.”

What does this decision mean for employers?

“This will be good news for employees, especially Mr Smith as he will now be able to claim for past holiday years. However, worrying for employers.

Of more interest, in some ways, was Lady Justice Simler’s comments about Bear Scotland.

That decision has remained contentious since it was made and these latest comments are bound to encourage claimant lawyers in the future trying to formally overturn the decision.”

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