The Court of Appeal has upheld Gary Smith’s claim for accrued holiday pay against Pimlico Plumbers, after both the employment tribunal and the Employment Appeal Tribunal had dismissed his claim.
Following termination of his engagement as a plumber, Mr Smith brought claims against Pimlico Plumbers including a £74,000 holiday pay claim. The first hurdle to overcome was to prove that he was a worker. In June 2018, the Supreme Court confirmed that he should have been treated as a worker throughout his engagement (rather than a self-employed contractor), so his holiday pay claim continued.
In the UK, full time workers are entitled to four weeks paid annual holiday (derived from EU law - “WTD Holiday”) and an additional 1.6 weeks’ paid annual holiday (derived from our domestic law). Mr Smith had taken holiday during his engagement, but Pimlico Plumbers had refused to pay him for this due to mis-categorisation of his employment status.
His holiday pay claim was dismissed by both the employment tribunal and the EAT as they held the only claim Mr Smith had brought was for unlawful deduction from wages for underpaid holiday and that claim was out of time.
Mr Smith appealed. The appeal focused only on Mr Smith’s WTD Holiday and there were two key issues.
Was Mr Smith entitled to recover unpaid WTD holiday on termination?
The first issue was whether Mr Smith could also bring a claim under Working Time legislation for unpaid WTD Holiday (rather than just a claim for unlawful deduction from wages). The EAT rejected this holding that previous case law - which permitted carry forward of WTD Holiday where a worker had been deterred from taking this due to mis-categorisation - did not apply to Mr Smith who had taken holiday but had not been paid for it.
This EAT ruling has now been overturned by the Court of Appeal. It has held that the right under EU law is to four weeks’ paid holiday each year. Refusing to pay a worker for WTD Holiday means that they have not been able to exercise this right. Therefore, Mr Smith’s right to payment for WTD Holiday carried forward throughout his contract and he was entitled to payment in lieu upon termination.
The 2 year backstop for claims of underpaid holiday pay does not apply in this situation. However, it appears that this principle only applies where a worker has been miscategorised as self-employed and has therefore been prevented from taking WTD Holiday or has not been paid for WTD Holiday. This ruling does not extend to claims for underpaid holiday pay where holiday pay has been paid but miscalculated by the employer.
Was Mr Smith’s claim for unlawful deduction from wages out of time?
The second issue was whether Mr Smith’s unlawful deduction from wages claim for underpaid holiday pay was truly out of time. In deciding the claim was out of time, the EAT had relied on the decision in Bear Scotland v Fulton which established that a series of deductions from wages would be broken by a gap of more than three months between deductions (e.g. a gap of more than three months between miscalculations of holiday pay).
Having decided the first issue, the Court of Appeal did not need to determine whether Mr Smith’s unlawful deduction from wages claim was in time. However, they made non-binding comments indicating that the decision in Bear Scotland v Fulton is wrong. In their view, the decision of the Northern Ireland Court of Appeal in Chief Constable of Northern Ireland v Agnew – that a gap of more than three months does not break a series of deductions – is correct.
A decision that a series of deductions continues regardless of any gap between underpayments will have significant implications for all holiday pay claims. The Agnew decision is not currently binding in Great Britain. This case was appealed to the UK Supreme Court but has been removed from the list pending mediation. In any event, it appears that the principle established in Bear Scotland v Fulton can no longer be safely relied upon and employers should expect this to be a key area of challenge in future holiday pay claims.
[Edited on 14/2/2022 to clarify the position in relation to the listing of Agnew in the Supreme Court.]