A recent ECJ decision exposes businesses to significant holiday pay liabilities where they have self-employed staff who are determined to be workers, as Sarah Ozanne reports

In The Sash Window Workshop and another v King, the European Court of Justice (ECJ) held that a worker who has been prevented from taking holiday because of his employer’s refusal to pay for that holiday is entitled to be paid in respect of all accrued holiday to the date of termination. In this case, the worker was therefore entitled to be paid in respect of 13 years of holiday accrued during his engagement.

Mr King worked for Sash Windows on the basis of a ‘self-employed, commission-only’ contract from 1 June 1999 until he retired on 6 October 2012. When King took leave, it was unpaid. When his role was terminated, King brought a claim to recover payment for annual leave, whether he had taken the leave or not, including: leave accrued but untaken at termination for the final leave year; leave actually taken between 1999 and 2012 but for which no payment was received; and leave that accrued but was not taken between 1999 and 2012.

The case eventually reached the Court of Appeal, by which time it had been accepted that King was a worker and entitled to holiday pay. The question referred to the ECJ was with regard to King’s entitlement to the payment for holiday that he had not taken.

In its judgment, the ECJ re-emphasised the right under the Working Time Directive for a worker to take annual leave and to be paid in respect of that holiday as part and parcel of the same entitlement. The purpose of this was to allow the worker to enjoy a period of rest and relaxation without suffering financially for doing so. The ECJ therefore held that where a dispute exists between a worker and his employer as to whether the worker is entitled to take paid leave, the worker does not have to take the leave first to establish that he has a right to be paid for it.

The ECJ held that King’s right to be paid in respect of accrued holiday was not limited to a period of 15 months, as it had held in the 2009 Schultz case. This was on the basis that Mr Schulz’s absence on extended sick leave would have caused his employer difficulties in the organisation of work. The same could not be said for King’s employer, which benefited from his work during periods he could have taken as holiday.

Starkly, the ECJ stated that the fact that Sash Window wrongly believed King was not entitled to paid annual leave was irrelevant, and that it was an employer’s responsibility to seek all information regarding its obligations in respect of holiday entitlement.

In summary, the ECJ stated that the Working Time Directive precludes any provisions in domestic law that seek to limit a worker’s ability to carry forward annual leave where he had been unable to take that leave because of his employer’s refusal to pay him. King was therefore entitled to be paid in respect of all of the holiday during his 13-year period of work for Sash Windows, whether he had taken the holiday or not. Whereas the government stepped in with regard to other recent holiday pay cases and introduced the Deduction from Wages (Limitation) Regulations 2014 to limit employers’ liability for historic holiday pay to two years from the date of claim, such a limitation would not apply in cases such as King.

The ECJ’s ruling is a harsh message for employers, particularly those working in the gig economy where there are large number of self-employed staff who may be determined to be workers. This decision, coupled with recent cases in respect of worker status and the work and pensions committee’s proposal to introduce a worker-by-default status, means many employers are facing potentially huge holiday pay liabilities. The decision is likely to feel particularly unfair for employers that find themselves in this position because of the state of the law rather than any intentional steps to deny worker rights.

Sarah Ozanne is an employment partner at CMS