How changes to holiday pay could affect businesses who rely on long-term contractors

A recent European Court of Justice ruling on holiday pay could have major implications for employers who engage contractors on a long-term basis. Coodes’ Employment team explains.

In a recent case against The Sash Window Workshop, a contractor successfully established that, despite the fact that he was termed self-employed, he was actually a worker by law and entitled to paid holiday.

Mr King worked on a commission-only basis for the company, receiving no sick pay or paid annual leave. He did not book any holiday as he knew he would not be paid.

As a result of this case, the European Court of Justice has now ruled that anyone who has worker status has an unlimited right to carry over paid annual leave, where they have not had the opportunity to take it because they wouldn’t have been paid for it.

The ruling states that any employee who meets the criteria to be classified as a worker, who did not receive paid holiday leave so didn’t book any, should now be due their annual leave allowance potentially going back to 1996, when the working time directive was introduced. This means that in the worst case scenario, companies who have employed long-serving self-employed people, could now be due to pay up to 80 weeks of holiday pay to each person.

This recent European Court of Justice ruling has also called into question another Employment Appeal Tribunal (EAT) decision relating to holiday pay. Last summer, the EAT confirmed that a series of unlawful deductions is broken where there are more than three months between non payments to a worker. In other words, if a worker has had a gap of three months or more between holiday the business does not need to reimburse the worker for earlier lost holiday pay. In addition, the Government recently introduced a two-year time limit on any retrospective claims for holiday pay. These rulings do not seem to be very compatible with the latest European Court of Justice ruling.

It is not yet clear how these various legislative changes will work together in practice. However, businesses who use contractors should be aware that they could now be vulnerable to high value claims. This decision has been made under the current EU-derived Working Time Directive, so it must be observed in its entirety until Brexit is enforced. When the UK leaves the EU, the position could potentially alter, but of course this remains to be seen.

For any employment related queries please contact the Employment Team on 01579 324017 or email steph.marsh@coodes.co.uk. Alternatively, you can fill out our online contact form.