The case of Mr. Smith and Pimlico Plumbers Limited (“Pimlico”) has provided one of the most high profile employment status cases in recent times. Now, in the most consequential ruling to involve the two parties, the Court of Appeal has decided that workers who have taken annual holiday on an unpaid basis can carry over the right to be paid for annual leave from one holiday year to the next and be entitled to be paid it at the end of their employment.

Background

Mr. Smith was engaged by Pimlico from 2005 until 2011. For most of that engagement he was considered to be an independent contractor. Pimlico did not recognise that Mr. Smith was entitled to paid annual leave due to being self-employed, and so did not pay him for it. Mr. Smith nevertheless took unpaid leave and took no steps to invoke the right to payment. Following the termination of Mr. Smith’s engagement with Pimlico he claimed that he was owed payment of the holiday that he took as unpaid.

The first significant decision in this case was the determination as to whether Mr. Smith was in fact a worker and not self-employed. This decision was made in the Employment Tribunal and later upheld by the Supreme Court in 2018 that Mr. Smith was a “worker” – not an independent contractor. With his status as a worker confirmed, Mr. Smith pursued his entitlement to holiday pay (amongst other claims).

Pimlico had by now already accepted that Mr. Smith was entitled to paid annual leave due to his status as a worker during that time and not truly self-employed. However, Pimlico went on to argue that Mr. Smith acted too late to enforce his rights as a worker. Pimlico’s arguments were initially successful in both the Employment Tribunal and the Employment Appeal Tribunal, which ruled that the claim had been brought out of time. His claim, it was ruled, had to be brought within three months of when he should have been paid for the holiday he had taken. Pimlico’s luck, however, ran out at the Court of Appeal in February 2022.

Court of Appeal rules against Pimlico

The Court of Appeal disagreed with the previous decisions by the lower courts, and ruled that Mr. Smith could in fact claim for his unpaid holiday throughout his total six year engagement.

Court of Appeal’s decision

The Court of Appeal looked again at the case King v Sash Window Workshop, a case relied on by the Employment Tribunal and the Employment Appeal Tribunal. In King, the European Court of Justice (“ECJ”) considered the scenario where a worker had not taken holiday because his employer wrongly recognised the relationship as one of self-employment and so would not have remunerated the worker for that leave. The ECJ held that Mr. King was entitled to carry forward and be compensated for untaken annual leave throughout his engagement.

The Court of Appeal decided that the principles in King apply equally where a worker takes holiday but is not paid for it. Mr. Smith was therefore entitled to all unpaid annual leave accrued throughout the period of his engagement by Pimlico – amounting to £74,000 in total taken and untaken annual leave.

The Court of Appeal held that workers will only lose their right to carry over paid annual leave if they have been given the opportunity to take it. Crucially, it was ruled that the burden is on the employer to give workers the opportunity to take the annual leave, encourage them to take annual leave and inform them that if they do not use it by the end of the current leave year it will be lost.

Impact

This judgment will have significant implications for employers who have wrongly classed individuals as self-employed when they are workers. This will leave employers open to significant financial implications as the right to paid annual leave can accumulate and therefore workers can claim for holiday pay from the start of their employment. The only limitation from the ruling is that employees can only claim four weeks’ paid holiday per year, although there is no limit on the amount of years that can be claimed as employees can claim for all years of employment as long as the claim is brought within three months of termination.

This case highlights the importance of employers ensuring that the status of anyone they are engaged with is correct, that they are ensuring that they inform workers of their holiday entitlement and that they encourage them to take it.

Holiday pay claims can be extremely complex. Please do get in touch if you would like to discuss what this might mean for your business.