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How to avoid historic holiday claims

First and foremost, do you know about employment status?…

In case you missed it…

In Smith v Pimlico Plumbers Limited the Court of Appeal has allowed Mr Smith’s appeal for £74,000 of holiday pay accrued over his six years’ service!

So, what happened?

Mr Smith worked for Pimlico Plumbers as a plumbing and heating engineer between August 2005 and May 2011. Pimlico Plumbers always maintained that Mr Smith was an independent contractor and so was not entitled to paid holidays. Mr Smith did take periods of unpaid annual leave and, following the termination of his contract, brought a number of claims; one of which was a holiday pay claim in relation to his unpaid annual leave.

The initial question to be determined by the Court was Mr Smith’s employment status and in 2018 the Supreme Court confirmed that Mr Smith was a worker, not an independent contractor.

Once he had his employment status confirmed (that he was a worker), Mr Smith went on to pursue his claims.

Initially, the Employment Tribunal dismissed Mr Smith’s holiday pay claim on the basis that it was out of time and that he had taken the annual leave (as opposed to being denied the opportunity to take leave, because he knew the leave would be unpaid, and so had not done so).

Mr Smith appealed to the Employment Appeal Tribunal (EAT) on the basis that the Employment Tribunal had got its approach to previous case law wrong and that the claim was not out of time.

What happened at the EAT?

The EAT dismissed Mr Smith’s appeal and found that the Employment Tribunal had not got its interpretation wrong. The EAT held that Mr Smith’s case was different because it was concerned with leave that was taken but not paid, as opposed to leave that was not taken at all.

Mr Smith appealed to the Court of Appeal.

What happened at the Court of Appeal? 

Mr Smith’s appeal succeeded.

The Court held that the right that is protected is the right to paid annual leave. A worker, the Court found, cannot be said to be exercising the right if they have taken unpaid annual leave and the employer has disputed that right and refused to pay.

It is important to remember that a worker can lose the right to take annual leave if it gets to the end of the holiday year and they have had the opportunity to take their annual leave; if you don’t use it, you lose it!

But…an employer must show that it specifically and transparently gave the worker the opportunity to take paid annual leave, encouraged them to take paid annual leave and informed them that the right to take paid annual leave would be lost at the end of the holiday year, if not used.  If the employer can’t demonstrate this, then the leave will carry over and accumulate until the termination of the worker’s contract.  At the point of termination, the worker is entitled to a payment in respect of the accrued but untaken holiday.

The Court of Appeal found that “a claim to payment for all the leave which Mr Smith took but for which he was not paid in breach of his right to paid annual leave was inherent in Mr Smith’s pleaded case” and the company’s failure to make payment to him was a breach of his right to paid annual leave.

It was also decided that Mr Smith’s claim was in time because he was denied the opportunity to exercise his right to paid annual leave throughout his engagement with the company and “The respondent could not discharge the relevant burden. The right did not therefore lapse but carried over and accumulated until termination of the contract, at which point Mr Smith was and remains entitled to a payment in respect of the unpaid leave.”

This case could have a huge impact on employers if they are wrongly engaging workers as self-employed contractors, as well as staff who receive any kind of variable pay. Further, this decision throws the two-year backstop on these kinds of holiday pay claims into question and almost invites any future claimants to challenge that backstop.

Could you be at risk of any legacy claims?

Do you know the employment status of everyone you engage?

How do you calculate your holiday pay?

Could you be at risk of holiday pay claims going back many years?

Get in touch to find out how we can help and support you and your business. Email hello@peachlaw.co.uk , connect with us on LinkedIn or drop us a message – Peach Law (HR & Employment Law Specialists) or pick up the phone and give us a call – 0161 478 3800.

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How to avoid historic holiday claims

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