Significant Court of Appeal decision on historic holiday pay entitlement for workers
Gig economy employers should sit up and take note of the recent decision in Smith v Pimlico Plumbers Ltd  EWCA. The Court of Appeal held that where workers succeed in establishing worker status and have taken unpaid working time leave, that leave can then be carried over and taken by the worker during the assignment or paid in lieu on termination. This decision could have significant implications for gig economy employers who have not paid holiday pay as workers can now recover payment for all of their working time leave, taken or untaken, for the entirety of the assignment.
This decision is the latest in a long-running claim brought by Mr Smith, a plumbing and heating engineer, against his former employers Pimlico Plumbers Ltd (PP). Mr Smith worked for PP for six years and had succeeded in 2018 in the Supreme Court in establishing that he was a worker for the purposes of the Working Time Regulations 1998 (WTR).
Throughout his employment PP maintained that as they did not consider him to be a worker, he was not entitled to paid holidays. Mr Smith therefore challenged PP and argued that he was entitled to paid annual leave.
The Court of Appeal reversed the decisions of the employment tribunal and EAT deciding that Mr Smith was entitled to payment for all unpaid holiday that he had taken during the six year period that he had worked for PP.
There are three key aspects to the Court of Appeal's judgment:
- The Court of Appeal held that the principles established in King v Sash Windows  ICR allowing the indefinite carry-over of untaken working time leave applied equally to working time leave taken by workers but unpaid.
- The right to carry over working time leave will only be lost if the employer can show that it gave a worker the opportunity to take paid annual leave, encouraged them to take it and informed them that the right would be lost at the end of the leave year.
- Obiter comments (not strictly binding) were made that the decision in Bear Scotland v Fulton  ICR was wrong to hold that a gap of more than three months between deductions prevents a 'series' for the purposes of a deduction from wages claim. Significantly, the Court of Appeal preferred the view of the Northern Ireland Court of Appeal in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others  NICA 32 that a 3 month gap did not break a series of underpayments of wages where there was a sufficient factual and temporal link between the deductions.
What does this case mean for businesses?
Although the decision only applies to four weeks working time leave, claims for payment in respect of both untaken and taken working time leave will accrue throughout a worker’s engagement and this could represent a substantial potential liability to gig economy employers. Businesses should therefore review their existing contractor arrangements carefully to assess the level of risk in relation to any historic holiday pay entitlements.
It is also notable that the Court of Appeal favoured the NI Court of Appeal decision in Agnew. In Northern Ireland we do not have the two year limitation period for holiday pay claims which applies in the rest of the UK and so the potential liability for gig economy businesses in this jurisdiction is even greater as a result.
For further information in relation to this topic please contact Aisling Byrne, Partner or a member of ALG's Belfast Employment and Incentives team.
Date published: 25 February 2022