In an important judgment, the Court of Appeal has held in Smith v Pimlico Plumbers Ltd that a worker who took holiday but was not paid for it as his employer denied he was a worker, was entitled to carry over his right to receive paid annual leave from one year to the next. This meant that he was entitled to bring a claim for the payment he was owed when his employment terminated.
Mr Smith, a plumbing and heating engineer, worked for Pimlico Plumbers from August 2005 to May 2011. During that time, he took different periods of leave, but was never paid for any of it. In August 2011, he lodged a claim for holiday pay under the Working Time Regulations (WTR), as well as a claim for unlawful deduction from wages. Pimlico Plumbers argued that he was a self-employed independent contractor who had no entitlement to paid annual leave.
Mr Smith’s claim that he was a worker under the Employment Rights Act 1996 was, however, finally upheld by the Supreme Court in June 2018 (LELR 581). Mr Smith then returned to the tribunal in March 2019 so that his claim that he was entitled to be paid for the annual leave he had taken while working for Pimlico could be heard.
Tribunal and EAT decisions
The tribunal dismissed the complaint, holding that he had not lodged his claim for paid annual leave within three months of the date when payment should have been made. The last period of unpaid leave he had taken on 4 January 2011 should have been paid on 5 February 2011 and his claim should have been lodged by 4 May 2011.
The tribunal also rejected his argument that the decision in King v The Sash Window Workshop Ltd and anor (LELR 555), applied to his case. In that case, the European Court held that a worker who had not taken paid annual leave because the employer denied they had a right to it, accrued a right to be paid for the untaken annual leave on termination.
The EAT agreed with the tribunal, holding that the decision in King only applied to workers who had not taken annual leave and so had not been able to exercise their right to paid annual leave. The right to carry over entitlement to paid annual leave until termination did not apply to Mr Smith because he had exercised his right by actually taking annual leave, despite the fact he was not paid for it. As he did not have a right to carry over paid annual leave, his claim was out of time.
Decision of Court of Appeal
Upholding Mr Smith’s appeal, the Court of Appeal held that the principles established in King had a broader reach and could be applied to workers who have taken leave and not been paid for it. It considered that the right to paid annual leave was a fundamental right which could not be subject to preconditions. An employer who refuses a worker payment for annual leave they have taken because they dispute that the worker is entitled to it is effectively applying a precondition.
Moreover, the right to paid annual leave was a single composite right to four weeks paid annual leave. In other words, there is a right to be paid when the annual leave is taken. A worker who is faced with the uncertainty as to whether they will be paid for leave when taking it could not be said to have the full benefit of that leave as a period of relaxation and leisure, and may also be deterred from taking it.
Finally, the court held that the right to paid annual leave cannot be lost unless the worker has had the opportunity to exercise that right before termination of employment. It made clear that a worker can only lose the right to take leave at the end of the leave year if the employer can show “specifically and transparently” that they gave the worker the chance to take the paid leave, encouraged them to do so, and told them that they would lose the right at the end of the leave year if they did not take it. If the employer cannot show that they did that, then the right does not lapse but carries over until termination of the contract, at which point the worker is entitled to be paid. Provided a claim is brought within three months of the date of termination of the contract, the claim would be in time.
Not only did the tribunal get this point wrong, but it was also wrong to hold that Mr Smith’s claim was out of time. The right did not lapse but was carried over and accumulated until termination of the contract, meaning that Mr Smith was and remains entitled to a payment in respect of the unpaid leave.
Although it was not necessary to decide the point the court gave “a strong, provisional view” that the decision in Bear Scotland was wrong, to hold that a gap of three months between deductions meant that they could not amount to a series of deductions.
This is a significant judgment. It means that workers who have been wrongly denied the right to the statutory four weeks holiday or payment for the holidays they have taken can carry over the right and claim payment on termination. Provided a claim for the statutory four weeks holiday pay is lodged within three months of the date of termination, a worker who is denied their right to paid annual leave can claim payment for all the untaken and unpaid leave going back to when they were first engaged and denied holiday pay.