ECJ rules in favour of worker in Sash Windows holiday case

Decision may see employers forced to compensate for previously unpaid leave, lawyers warn

Businesses with self-employed workforces are highly likely to have to compensate many of their workers for previously unpaid holiday, after the European Court of Justice (ECJ) today ruled in favour of a worker in the long-running and eagerly awaited Sash Windows case.

The court decided that Mr King – a commission-based salesman who did not receive holiday pay for 13 years and took numerous unpaid holidays during this period – was due compensation for his time off.

This is likely to mean that anyone with worker status will be able to carry leave over to subsequent years if they are unable to take it for reasons beyond their control. More significantly, it will almost certainly lead to large and potentially uncapped compensation for businesses whose workforces may be able to argue that they should be recognised as workers, including many in the gig economy.

The latest ruling has seen the ECJ agree with the opinion of the advocate general, issued in June, that King was due compensation. The ECJ had been asked for its opinion by the UK’s Court of Appeal, where the case will now return. Assuming the court agrees with the ECJ’s verdict – which most legal commentators say is highly likely – the government will then be asked to formally legislate as a result. This process will not be affected by Brexit, as British law is expected to be consistent with previous ECJ decisions going forward.

The history of the case has already become part of employment law and HR textbooks. King’s initial contract with the company did not mention paid leave, and when he did take time off during his tenure – typically a couple of weeks annually – he was not paid.

 In 2008, Sash Window Workshop offered King an employee contract, but he opted to remain self-employed and continued to do so until he was dismissed in October 2012 – on his 65th birthday. He brought a case regarding his dismissal in December 2012.

As a worker, King argued that he was entitled to receive payment for previously taken unpaid leave, and claimed for all holiday he had accrued since the beginning of his employment with the business in 1999. He also said he had not been able to take this leave because the business did not provide pay during leave. 

Although King was successful at the employment tribunal, his former employer overturned the decision through an appeal to the Employment Appeal Tribunal. King then appealed to the Court of Appeal, which ruled in his favour.

Current regulations state that statutory holiday entitlement under the Working Time Directive expires at the end of each leave year, and is lost if not taken. The only exception to this is if, at the end of a leave year, a worker who is off sick has been unable to take planned annual leave because of sickness absence. The Sash Windows ruling means other workers could be given the right to accumulate unexercised rights to paid annual leave when their employer does not put them in a position in which they were able to exercise it, if the Court of Appeal follows the ECJ.

“This outcome is going to be a huge issue for businesses where there is uncertainty over the employment status of some of the workforce, and is going to be problematic for employers that are part of the gig economy,” Dan Begbie-Clench, partner at Doyle Clayton, told People Management.

“Those who are seen as self-employed by businesses, who are in fact workers, could be given the right to claim a lump sum of holiday pay from the businesses they work for. This could allow workers who haven’t been allowed to take paid holiday to file claims against the business.”

Begbie-Clench warned employers facing uncertainty about workers’ employment status to clarify the matter sooner rather than later. “Employers must regularise those positions and contracts as quickly as they can, to reduce the risk of their self-employed contractors being able to claim that they are in fact workers entitled to holiday pay,” he said. 

James Williams, barrister at Henderson Chambers, who represented King, said the decision will be of “great significance” to workers wrongly categorised by their employers as self-employed. “In the longer term, the decision should reduce the financial incentive for employers to deny that their staff are entitled to holiday pay – since, if the employer gets this wrong, it must compensate the worker accordingly,” he said.

“This means companies that deliberately categorise staff as self-employed to deny them basic employment rights should no longer gain such a significant competitive advantage.”

Sybille Steiner, employment partner at Irwin Mitchell, said: “The ECJ made it clear that previous cases involving sickness that imposed limits on how far back holiday could accrue should not be followed. Here the employer was not faced with periods of absence that could have led to difficulties in the organisation of work, but instead was able to benefit from the fact that Mr King did not interrupt his professional activity in its service to take paid annual leave. This means that workers like Mr King should be able to recover all untaken holiday, although that will be limited to 20 days rather than all additional holiday."

The ECJ reiterated that paid holiday is an important health and safety initiative, which is necessary for workers to recover from the demands of working, she said, adding that workers should not be dissuaded from taking it and must be paid. 

“The European court has made clear its forthright position by stating: ‘An employer that does not allow a worker to exercise his right to annual leave must bear the consequences.’ Gig-economy employers in particular will be affected hugely by the decision,” said Steiner.