King –v- Sash Window Workshop Company was a particularly difficult European Court of Justice case for businesses in the gig economy.  It suggested that where a worker was not provided with an adequate facility to take the paid leave to which he was entitled by that status under the Working Time Regulations (in particular, because his engager did not believe him to be a worker) then on the termination of his engagement he could claim holiday pay not just for holidays he had taken, but also for those he had not taken because he knew he wouldn’t be paid for them.  Moreover, he could do that without background limit in time.

If that was right, it meant that anyone newly establishing themselves as a worker by ET decision or employer concession basically had a claim on the termination of their agreement for four weeks’ pay per year of service, a sum which could threaten the solvency of businesses using large numbers of notionally self-employed people.  The ECJ decision was designed to protect the rights of workers but in some respects had the opposite effect – since the built-up holiday costs of accepting notionally self-employed individuals as being workers were so large, many businesses chose instead to reduce the rights and protections for those individuals so as to keep them as far from worker status as they could.

However, just as the Supreme Court in Uber added new impetus to the general direction of legal travel towards that status, along came the EAT in Smith –v- Pimlico Plumbers yesterday to defuse, at least to some extent, the ticking holiday pay time-bomb sitting underneath it.

The EAT decided that Mr Smith had not brought a claim for accrued holiday pay on the termination of his engagement, or for pay for holidays he hadn’t taken.  He had only brought a claim for pay for holidays which he had taken but had not been paid for.  At the ET in March 2019, Smith’s claim was found out of time, but in any case the ET decided for good measure that the no-backstop ruling in Sash Window only applied to claims for holidays which the worker was refused or deterred from taking by his not being paid.  It did not apply to open the floodgates for holidays which had actually been taken, but unpaid.

The EAT considered whether it was possible to separate rights to holiday pay from rights to the leave itself, as the WTR do in Regulations 13 (claims for leave) and 16 (those for pay).  The ECJ had seen the two as indivisible, in that a person not being paid for leave either might not take it, or might at least feel less relaxed about how he was going to afford it, and so not get the therapeutic health benefit out of the holiday aimed at by the Working Time Directive.  In the ECJ’s view, leave without pay was not really leave at all, hence its allowing unlimited retrospective claims for both.

The EAT was unpersuaded. You couldn’t say you had been deterred from taking holiday you had actually taken. [Added to which is that as anyone who has been away with other people’s children already knows, there is no entitlement at law to a holiday which is actually relaxing or enjoyable in the first place. Not a point the EAT made, for some reason, but it certainly could have done]. The question was whether a worker denied pay for holidays taken had the means under existing English law to secure an adequate remedy for this. If he did not, EU law would have to prevail to make sure that he did. In Regulation 16 the EAT found that he did indeed have that avenue, i.e. a right to claim that pay in the Employment Tribunal.  The time limit for claims under Regulation 16 has no provision linking a series of non-payments.  Therefore the relevant time limit for a claim for pay for an unpaid holiday period was roughly three months from the end of that period.  As a result, Smith was out of time as the ET had said. The Judge did not consider that Smith’s ignorance of the claims available to him at the time made it appropriate to extend time for that purpose. He knew enough at least to trigger further enquiries, i.e. that he had been on leave and not been paid for it.

Let us be clear here – this isn’t the end of holiday pay claims by those newly found to be workers.  It is still possible for someone claiming to be a worker to bring a claim on termination of engagement under Regulation 14, and to argue that if he took less than the WTD four weeks’ minimum holiday, it was because he knew he wouldn’t be paid.  Indeed, the EAT said that this reasoning would probably be assumed in default of evidence to the contrary, so it would be up to the employer to show for what other reason the individual had not downed tools for the full four weeks.

Conversely, where there are days that the individual did not work, there will still be scope for argument as to why not.  Was he away, ill or doing work for someone else?  Was it holiday or the exercise of his contractual freedom to work and not work on such days as he wished?  It may be that we will see worker and contractor contracts increasingly including the common employee provision that any leave taken by the individual eats up his WTR holiday entitlement first.  One unfortunate corollary of employers not historically treating individuals as workers is that they may have gone out of their way not to ask or know what those people do on days they don’t work, so the potential for factual dispute about whether leave was actually taken in any given case remains considerable.

As a matter of general principle, nonetheless, the EAT in Pimlico Plumbers has taken much of the latent financial threat out of worker status claims.  It may that as a result, businesses will be more willing to countenance the formal introduction of worker status and the protections which it brings for some of their self-employed providers.  Equally, the decision may well be appealed, in which case the Sash Window elephant will remain in the room and the current stand-off between businesses and would-be workers will continue very much alive.