Can a worker carry over unpaid leave taken when their employer incorrectly failed to recognise them as a worker?

Yes, held the Court of Appeal in the case of Smith v Pimlico Plumbers Ltd.

Smith v Pimlico Plumbers Limited

This decision is the latest in a long-running dispute. Smith has previously succeeded before the Supreme Court in establishing that he was a worker for the purposes of various pieces of legislation and not an independent contractor as was suggested in an agreement between the parties.

As Pimlico did not view Smith as an employee or worker, they did not consider him to be entitled to paid annual leave and as a result Smith was required to take leave on an unpaid basis. He did this routinely. After his engagement with Pimlico ended he brought claims for unpaid holiday entitlement, said to be due to him, under the Working Time Regulations (WTR).

The WTR entitle workers to up to 5.6 weeks’ paid leave for every year worked. Within the WTR there is a distinction between 4 weeks’ leave which are provided for under the Working Time Directive and a further 1.6 weeks that are unique to UK law.

Previous case law (King v Sash Window Workshop Ltd) established that claims for 4 weeks’ leave (pursuant to the Working Time Directive) which had not been taken could be backdated without limitation. Smith argued that the ability to claim for historic holiday entitlement should be extended to situations where leave had been taken by the worker, but not paid.

The decision

Smith was unsuccessful before both the Employment Tribunal (“ET”) and the Employment Appeal Tribunal (“EAT”).

They found that his claim was for holiday pay in respect of leave he had already taken was out of time, as there has been a gap of more than three months between the various periods of annual leave. On technical grounds this claim was rejected.

In any event, both the ET and the EAT held that the ability to claim for backdated leave established in Sash Windows, was limited to situations whereby the worker was refused leave or deterred from taking it because they were unpaid. As Smith had taken unpaid leave, these principals did not apply.

Smith appealed to the Court of Appeal (“CoA”), where it was held that he was entitled to compensation for all of the unpaid leave he had taken throughout his time with Pimlico. The CoA considered that the judgment in Sash Windows had been incorrectly applied by the ET and the EAT, who had failed to recognise that it created a singular, indivisible right to ‘paid annual leave’. The CoA held that the right was two-fold; a right to leave and a right to pay.

Accordingly, Smith had not exercised this right when taking unpaid leave.

Implications for employers

The decision is clear that the principles established in Sash Windows extend to workers who have taken annual leave but have not been paid for it. Claims for leave which have been untaken and/or unpaid will accrue throughout a worker’s engagement, without limitation.

On the back of this decision, employers and particularly employers who rely on workers and independent contractors, are advised to ensure that they properly assess the true employment status of those they engage. It would also be worthwhile assessing what exposure there may be to historic holiday pay claims, if status is successfully challenged.