Advocate general drops holiday pay bombshell

The advocate general has given an opinion which could open the way to substantial claims for backdated holiday pay from gig economy workers.

Overview

The advocate general’s opinion in King v the Sash Window Workshop would put the onus squarely on employers to provide an “adequate facility” for the exercise of the right to take paid annual leave under the Working Time Directive (WTD).

The legal background

Advocate General Tanchev’s opinion was given on 8 June 2017, in response to a request for a reference to the European Court of Justice from the Court of Appeal. That followed an appeal by Mr King from the decision of the Employment Appeal Tribunal.

Mr King had been working as a commission only salesman since 1999. He had been categorised as self-employed, and had refused a new contract as an employee on different terms and conditions in 2008. He brought a number of claims against Sash Windows after his engagement was terminated in 2012, when he reached the age of 65.

By the time of Mr King’s appeal the only live issue was whether the employment tribunal had been entitled to award him “holiday pay 3” (ie pay in lieu of holiday untaken throughout the working relationship) by way of a payment in lieu under regulation 14(2) Working Time Regulations (WTR).

The EAT was of the opinion that the tribunal had not been able to make him an award going all the way back to 1999, without making the necessary findings about whether he had been unable to take leave because it would have been refused if he had asked for it.

The Court of Appeal identified two key questions in its reference. First, whether regulation 13 WTR was compatible with article 7 WTD, given that, at least according to the EAT’s analysis, it appeared to presuppose that leave had to be taken before a claim could be made for non-payment. Secondly, there was an issue about the circumstances in which untaken leave could be carried forward, and if so for how long.

The EAT’s analysis had been focused largely on the cases about workers who had not been able to take their holiday because of sickness, culminating in the Court of Appeal’s decision in NHS Leeds v Larner. In effect that case established a time-limited exception to the prohibition in the WTR on carrying forward leave where the worker had been unable to take it due to sickness. However, no case at Court of Appeal level has yet dealt with the situation of a worker who failed to take holiday because he was engaged under a contract which, at least on the face of it, was incompatible with the right to take annual leave at all.

The opinion

Although Mr King’s engagement pre-dated the emergence of the gig economy, the advocate general was acutely aware that the answer to the reference would have significant implications for the “increasing number of people across the European Union who work on flexible, casual and intermittent bases”.

In formulating an answer to the questions posed he did not, as widely expected, proceed by analogy with the large number of ECJ decisions about carrying forward paid holiday under the Directive in the event of sickness. Instead he relied on the broad principles established by article 7 WTD: article 7(1) creates the right to paid annual leave of at least four weeks, and article 7(2) states that it may not be replaced by a payment in lieu, except if the relationship is terminated.

He relied particularly on Fuss v Stadt Halle (a case about the 48 hour limit on the working week) as establishing that it would be incompatible with the WTD to “shift to individuals the burden of compliance”. He did not cite the older case of Commission v UK, but it is arguable that in that case the ECJ came to a similar conclusion in relation to the right to rest breaks.

In broad terms, the advocate general concluded that “if an adequate facility for the exercise of the right to paid annual leave was never provided, then an allowance is due under article 7(2) of the Directive to cover the full period of employment until termination of the employment relationship”. What would an adequate facility look like? This would be a matter for the national courts, but it is likely to entail characterising the relationship correctly in the first place, and then making sure that the contractual terms on offer clearly identity the right to paid leave and the arrangements for exercising it. In particular, in his opinion, it cannot be right to place the onus on the worker to take unpaid leave as a pre-condition for establishing the right.

The possible consequences

If this opinion is followed by the ECJ, it will considerably raise the stakes in the gig economy litigation over employment status, which reaches the EAT in an appeal hearing involving Uber this September. In particular, it appears to offer a way of circumventing the current restrictions on recovering back-dated underpayments, at least where the contractual relationship has ended.

While the combination of the WTR and the Employment Rights Act 1996 permits a claim within three months of the end a “series of deductions”, the EAT has ruled in Bear Scotland that a gap of more than three months between each deduction breaks the series. In addition, since July 2015 the Deduction from Wages (Limitation) Regulations have prevented recovery for underpayments going back more than two years from the date of the claim.

This is an edited version of an article first published in the New Law Journal on 28 July 2017.