The Court of Appeal has given judgment in Smith v Pimlico Plumbers, the second significant judgment between the parties with implications for UK employment law. Many will remember the first judgment given by the Supreme Court, which concerned the determination of worker status. This second judgment concerns carryover of the right to paid holiday, from one leave year to the next.
Mr Smith was engaged by Pimlico Plumbers as a self-employed contractor and consequently not permitted to take paid annual leave pursuant to Working Time Regulations 1998 (WTR). Mr Smith would in any event take periods of unpaid time off work from time to time.
Mr Smith brought claims against Pimlico including unlawful deduction of wages and a breach of the WTRs, relating to unpaid holiday pay throughout the entire period he was engaged (approximately 6 years). The Employment Tribunal dismissed the claim on the basis that: i) it was out of time (as it had not been brought within 3 months of the most recent refusal of holiday); and ii) as he had taken annual leave albeit unpaid, he had not accrued a right to unpaid leave payable on termination.
The ET’s decision was ultimately overturned by the Court of Appeal. It held that there was a composite right to “paid leave” and the ET was wrong to find Mr Smith’s right under the WTRs to be discharged by him taking periods of unpaid leave. A worker taking leave when the employer disputes the right to payment for that leave, meant the employer was putting pre-conditions on the worker exercising their right to paid leave which was unlawful. The Court of Appeal clarified that the right to paid annual leave would be lost at the end of any leave year where the worker had the opportunity to take it, had been encouraged to take it and had been told that it would be lost if it remained untaken. Where that was not the case, the right to payment for accrued but untaken leave would continue to accrue and crystallise on termination.
The Court of appeal also gave a strong provisional view that the EAT’s decision in Bear Scotland Ltd v Fulton, which confirmed a series of unlawful deductions of wages would be broken where there had been a gap of three months or more between deductions, was incorrect. A Tribunal needs to consider whether there is a sufficient factual link between deductions regardless of the length of any breaks in the series. This was relevant to whether earlier claims for unlawful deduction of wages were out of time.
Graham Irons comments:
"Businesses can be forgiven for being fatigued by the issue of holiday pay, but they should take note of this case as it could have significant implications. Many will engage consultants or other contractors who are not paid holiday pay. Where there is a risk that those individuals are properly workers, there could be a significant holiday pay liability looming. They should therefore review those relationships and consider whether steps need to be taken to ensure individuals are properly engaged as independent contractors."
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