UK employers: are your workers entitled to holiday pay?

Article Experience

When hiring staff, it can be difficult to judge what rights someone who is not clearly an employee should have. On 1 February 2022, the Court of Appeal handed down a decision about holiday pay that could have very expensive consequences for employers who make the wrong judgement about when to pay holiday pay and to whom. This case might encourage you to err on the side of caution.

What happened?

This case concerned the statutory right to four weeks’ paid leave under the European Working Time Directive, which has been incorporated into UK law since Brexit, although arguments may follow about what exactly the post Brexit law means. The right is available to anyone who is not genuinely self-employed. Several recent cases in the Supreme Court and Court of Appeal have looked at who falls into this category, with many ‘gig economy’ and other atypical workers now benefiting.

The Court made it very clear that the onus is on employers to take steps to draw the right to paid holiday to the attention of their workforce. If they do not do so, the right to pay for holiday, whether taken or not, will accumulate to the end of the period of employment and payment will fall due then provided a claim is initiated within three months of termination. The Court set a high bar for employers, saying that workers will accumulate a right to holiday pay unless the employer has clearly and explicitly given the worker an opportunity to take paid leave, encouraged the worker to take it and warned the worker that if they do not take it in the leave year they will lose the right. An employer who stays silent and hopes for the best could, following the judgment, be left with a large bill when the worker leaves.

The decision came out of the long running litigation between Gary Smith and Pimlico Plumbers. After succeeding in the Supreme Court in his claim that he was not self-employed, but a worker entitled to holiday pay, Mr Smith’s claim for pay failed in the employment tribunal, which held that he had brought the claim out of time. The Employment Appeal Tribunal agreed with that decision, but it has now been overturned by the Court of Appeal.

What do you need to be aware of?

Beware of assuming that any exposure you have as a result of the case will be limited by rules that prevent workers making claims for deductions from wages that go back more than two years. If workers bring their claims under the Working Time Regulations in light of this Court of Appeal decision, those rules will not apply.

If you do not already make clear provision for holiday pay for your workers, or are not sure which workers the right applies to, you should take steps to respond to the judgment to avoid very expensive claims when workers who have taken less paid holiday than they are entitled to under the Working Time Directive leave their employment. Mr Smith is claiming in excess of £75,000, which Pimlico Plumbers may now have to find, unless it decides to appeal the decision to the Supreme Court, or the amount is disputed when the case returns to the employment tribunal.

For information about how this decision might affect you, please contact a member of our team.