In another important ruling for the gig economy, the Court of Appeal has ruled that a worker who was wrongly classed as self-employed by his employer is entitled to claim payment for all unpaid annual leave accumulated during his contract.

Paid annual leave

Under the EU Working Time Directive (WTD), workers are entitled to 4 weeks' paid leave in each year.

The Working Time Regulations (WTR) were introduced in the UK to implement the minimum annual leave right under the WTD.

The WTR puts time limits on workers to make any tribunal claims for paid annual leave rights.

If a worker takes unpaid leave and wants to claim compensation for unlawful deductions from wages, they must make the claim within 3 months of each particular deduction.

If a worker wants to claim compensation for untaken leave, they must make the claim within 3 months of the date their contract ends.

The case

During the 6 years with his employer, a plumber was treated as self-employed with no right to paid annual leave. He still chose to take periods of (unpaid) leave.

The plumber didn't try to assert his right to paid annual leave while at the company. However, when his contract ended, the plumber made an Employment Tribunal claim for unpaid annual leave, both taken and untaken, for each year he was at the company.

He'd already won a Supreme Court case that confirmed his employer should've classified him as a worker under UK employment law. He was therefore free to continue his tribunal claim.

Failed tribunal claims

The tribunal claim relied on a decision by the European Court of Justice (ECJ) in a case where a worker wasn't given any paid annual leave because he was wrongly considered self-employed. However, the worker in that case didn't take unpaid leave.

The ECJ ruled that the worker's untaken leave carried over at the end of each year and accumulated until his contract ended. Therefore, at this point, he could claim payment for all untaken leave.

The plumber's tribunal claim failed, however, because the tribunal decided that the ECJ case didn't apply where leave was taken but unpaid.

It further found that the plumber's claim for unpaid leave pay should have been for unlawful deductions from wages and, therefore, was made too late.

The plumber unsuccessfully appealed to the Employment Appeal Tribunal before bringing his claim to the Court of Appeal.

The Court of Appeal (CA)

The CA found that the tribunal had misinterpreted the ECJ's decision. Although the ECJ case involved a claim for compensation for leave not taken, the decision was based on principles that also apply to leave taken but unpaid:

  • An employer failing to pay for leave when it's taken is likely to prevent the worker from fully enjoying it as a period of rest and relaxation – an important health and safety right guaranteed by the WTD. By denying the worker this right, the employer benefits at the expense of the worker's health, which the WTD prohibits.
  • The right to paid annual leave can't be lost if the worker isn't given a chance to exercise that right. In these cases, national laws like the WTR, which prevent paid annual leave from carrying over, don't apply. It doesn't matter if the worker took unpaid leave or didn't take leave at all.

The CA therefore found that because the plumber's employers had prevented him from exercising his right to paid annual leave (by wrongly classing him as self-employed), he couldn't lose that right whether he took unpaid leave or not.

His paid annual leave rights therefore carried over at the end of each year and accumulated until his contract ended. At this point he could claim payment for all unpaid leave for the full period of his contract.

This also meant that the plumber's claim was not too late as he had made it within 3 months of the date his contract ended.

What this means for you

You should think carefully about the status of the people you employ.

Take care not to deny your workers the right to paid leave by incorrectly classing them as self-employed. If you do, they can claim payment for all unpaid leave during their contract – whether they take unpaid leave or don't take any leave at all.

The only requirement is that they make their claim within 3 months of the date their contract ends.

The decision also puts an extra burden on employers. If you want to avoid paid leave rights carrying over at the end of each year, you must be prepared to clearly show that you have:

  • given your workers the opportunity to take paid leave;
  • encouraged them to do so; and
  • informed them that the right will be lost at the end of each year.