The Court of Justice of the European Union (ECJ) has ruled that the method of enforcement of the right to paid holiday in the UK Working Time Regulations (WTR) is incompatible with the EU Working Time Directive. This is because, if an employer refuses to pay a worker for a period of holiday, under the provisions of the WTR, the worker has to take the leave unpaid before he can bring a claim for payment. The ECJ considers that this denies workers an effective remedy for an employer’s failure to provide paid holiday. Furthermore where an employer refuses to pay for holiday, the right to accrued unused holiday carries over until the termination of employment.
Facts of the case
In the case in question, King v The Sash Window Workshop Ltd (Case C-214/16), the claimant ostensibly worked for the employer as a self-employed contractor from June 1999. He was offered an employment contract in 2008 but chose to continue working on a self-employed basis. This meant that any holiday he took was unpaid. On termination of his engagement in 2012, the claimant made a claim for holiday pay and was successful on the basis that he was in fact a worker and therefore entitled to paid holiday including payment for holiday accrued but untaken over the previous years.
When the case came before the Court of Appeal, the Court referred a number of questions to the ECJ including whether the provisions of the WTR are consistent with the right to paid annual leave under the Working Time Directive, given that (on the logic of the Employment Appeal Tribunal’s analysis) the worker would first have to take unpaid leave before testing his entitlement to pay. It also sought clarification of the right to carry over accrued untaken holiday.
The ECJ’s ruling
The ECJ noted that it was clear from its case law that a worker must be entitled to benefit from the right to pay when taking annual leave. Therefore a worker who is faced with uncertainty about whether he will be paid during annual leave will not be able to benefit fully from that leave as a period of relaxation and leisure, and is likely to be dissuaded from taking leave in the first place.
Effective remedy under the WTR?
The ECJ also noted that, on the EAT’s interpretation of the relevant provisions of the WTR, a worker can claim breach of the right to paid holiday only to the extent that the employer did not allow him to take leave, whether paid or not; and can claim payment only for leave actually taken. This has the effect that, where the employer grants only unpaid leave, a worker is obliged to take leave without pay in the first place and then to bring an action to claim payment for it. The ECJ ruled that this result was incompatible with the Working Time Directive.
Right to carry over accrued untaken leave
On the question of the right to carry over any accrued but untaken leave, the ECJ noted that, in the case of a worker who is prevented from taking paid annual leave due to sickness, case law has permitted national law to limit the worker’s right to carry over that leave to 15 months. However, where an employer has refused to pay a worker during annual leave, a temporal restriction is not appropriate. The ECJ therefore concluded that the Directive requires a worker to be able to carry over and accumulate paid annual leave rights until the termination of employment where those rights have not been exercised over several consecutive reference periods because the employer refused to pay him during that leave.
It was irrelevant that the employer in the case considered, wrongly, that the claimant was not entitled to paid annual leave – it is up to the employer to inform itself of its obligations and an employer that does not allow a worker to exercise the right to paid annual leave must bear the consequences.
Implications of the ruling for employers
The ECJ’s ruling will have a significant impact on workers’ rights to recover payment for accrued unused holiday. In particular, where a worker has been deliberately or mistakenly classified as self-employed and has therefore been denied payment for any holiday taken, he may be able to claim back pay in respect of unpaid annual leave going back many years when his ‘worker’ status is established. It also suggests that the Deduction from Wages (Limitation) Regulations, which limit back pay claims to two years, are incompatible with EU law.