There have been a number of significant rulings on the topic of holiday pay over recent years and Smith v Pimlico Plumbings Ltd is the newest addition. Before we look at Smith, it is useful to understand how this area of law has developed over time.
In 2017, the European Court of Justice (ECJ) in King v The Sash Window Workshop Ltd ruled that where a worker is not granted the paid holiday to which he/she is entitled under the Working Time Directive (WTD), they can carry over and accumulate those holiday rights year on year, until they are able to exercise them. In the event that the employment is terminated, it was held that an employer must pay the employee in lieu of the holiday that they did not take, at the point of termination.
In King, the ECJ confirmed that the right to annual leave is a particularly important principle of EU social law, enabling workers to rest and enjoy a period of relaxation and leisure. A worker faced with uncertainty over remuneration is not able to fully benefit from the leave and is likely to be dissuaded from taking it. Any practice or omission of an employer that might have a deterrent effect is therefore incompatible with the purpose of paid annual leave.
Clarifying the rules
King can be contrasted with the recent decision of the Employment Appeal Tribunal (EAT) in Smith. The facts of Smith are that a self-employed contractor, who the Supreme Court ruled held the employment status of a ‘worker’, had taken various days off but had not been paid for them. The worker submitted his claim to the Tribunal in August 2011 after his employment terminated in May 2011. As Mr Smith was found to be a worker, he was entitled to holiday pay. Nevertheless, the Tribunal dismissed the claim, on the basis that it was out of time; his last unpaid period of holiday was taken in February 2011 and he had 3 months from that date to bring his claim for unlawful deductions (rather than his termination date in August 2011). Mr Smith challenged this ruling, arguing that he was entitled to a backdated payment for all of the unpaid annual leave he had taken during his employment. Mr Smith relied on the principles established in King, to assert that his claim was in time and that it only arose on termination of his employment in May 2011, not when he took his last period of holiday in February 2011.
The Tribunal held that the principles in King did not apply as they should only apply where the worker has not taken their holiday because they would not be paid for it, not where they have taken it but have not been paid for it.
Mr Smith appealed to the EAT who upheld the Tribunal’s decision. It was considered that the purpose of establishing the principles in King is to ensure that workers are given enough time to rest and that they are not dissuaded from exercising their right to take annual leave. The EAT further considered that it could not interpret the decision in King to mean that a worker should receive remuneration where they have not been dissuaded from taking it.
The impact of this new ruling is to limit the anticipated wide-reaching effects of the earlier decision in King which we expect will be welcome news for employers. On the other hand, this case is also a reminder that those of ‘worker’ status are entitled to paid holiday and a failure to pay a worker for some or all of their holiday would amount to an unlawful deduction of wages.
In reaching their decision, the EAT also considered the well-known case of Bear Scotland v Fulton and another from 2016 which held that a gap of three months or more between periods of unpaid holiday can break the chain in a series of deductions. This limits the scope of many holiday pay complaints. However, in 2017 the Northern Ireland Court of Appeal in Chief Constable of the Police Service of NI and Others v Agnew held that the Bear Scotland decision was incorrect and that a series of deductions is not broken by lawful payments, or by a gap in payments of three months or more. At the moment, there is very little impact of Agnew in the UK as decisions made in Northern Ireland are not binding on the UK courts. However, the decision in Agnew has been appealed by the employer and will be heard by the UK Supreme Court in November 2021, whose decision will be binding on all UK courts and which could, therefore, impact employers within the UK. There are, therefore, likely to be further important developments for employers in this area in the not too distant future.