The Working Time Regulations provide that holiday that accrues during a holiday year normally has to be used in that holiday year. Otherwise the worker loses the right to take the leave. There are certain exceptions to this principle, such as in cases of sickness absence or where leave cannot be taken for COVID-related reasons.

The CJEU has also found that if a worker does not take leave because he will not be paid for it, the worker can carry all their accrued leave forward to the end of the employment relationship and then claim a payment in lieu. This was established in the decision in King v Sash Window Workshop. In Smith v Pimlico Plumbers Ltd the Court of Appeal had to decide if the same principle applied if a worker had in fact taken leave but had not been paid for it. It found that it did.

What happened

Pimlico Plumbers engaged Mr Smith on what it said was a self-employed basis between 2005 and 2011. When his engagement terminated, he successfully argued that he was in fact a worker and as such entitled to statutory holiday.

During his engagement with Pimlico, he had taken periods of leave but had not been paid for them. When Pimlico terminated his engagement, he claimed a payment in lieu for the holiday he had taken but for which he had not been paid. Pimlico disputed the claim, arguing that the CJEU decision in King only entitled workers to carry leave forward to the end of employment if they had not in fact taken leave. If a worker had taken leave, as Mr Smith had done, their remedy was to claim payment within three months of the date the leave should have been paid under the Working Time Regulations.

Overturning the employment tribunal and EAT decisions, the Court of Appeal found that the principles established in King extend to a situation where a worker has taken leave but not been paid for it. The CJEU has repeatedly stressed that any practice that might potentially deter a worker from taking leave is incompatible with the right to paid annual leave. A worker should only lose the right to take leave if they have an opportunity to exercise the right before the end of the employment relationship. With those principles in mind, there was no difference between a situation in which a worker does not take leave because they will not be paid for it and one in which a worker takes leave but is not paid. In neither case has the worker been able to exercise their right to paid annual leave. 

Mr Smith had been prevented by reasons beyond his control from exercising his right to paid annual leave during his employment. As he would only lose the right to paid annual leave if he had the opportunity to exercise it, he was entitled to carry forward the accrued holiday to the end of his employment. At that point his rights crystallised.

What next

The decision applies to the basic four week holiday entitlement under the Working Time Directive, not to the additional 1.6 weeks’ statutory leave granted under UK law. Despite that, the impact of the decision is potentially significant for employers who have not paid holiday pay to individuals they deem to be self-employed. 

If such individuals can establish they are workers, they can potentially bring claims for four weeks’ holiday pay for each year of their engagement at the point that their worker relationship terminates. This could obviously be a significant sum where the worker relationship lasted a number of years. The value of Mr Smith’s claim was said to be £74,000, although this included a claim for the full 5.6 week domestic holiday entitlement. Any such claim would have to be brought within three months of the termination date. 

Given that such claims would be brought under the Working Time Regulations, the two year “backstop” period that applies to unauthorised deduction of wages claims will not apply to limit the look back period for such a claim.