Paid Annual Leave – Smith v Pimlico Plumbers Ltd – the saga continues

Just when you thought all aspects of paid annual leave had been covered, the Court of Appeal has handed down another decision about this ostensibly prosaic but incredibly thorny issue.

Many of you will be familiar with the background facts of the Pimlico case. See Joanne Sinclair’s blog of 23 March 2021. However, for those less well acquainted with this area of law, Mr Smith worked for Pimlico Plumbers in what was originally described as “an independent contract for the company in business for his own account.” Mr Smith argued that he was a ‘worker’ within the meaning of the Working Time Regulations 1998 and so was entitled to 4 weeks minimum annual leave a year, provided under the European Working Time Directive. (Notably, this did not extend to the additional 1.6 weeks of paid leave the UK Working Time Regulations give in addition to the 4 weeks’ “Euro leave”.) Mr Smith’s claim to be a ‘worker’ was disputed by the company, but ultimately upheld by the Supreme Court.

Satellite litigation ensued which sought to clarify the impact and extent of the Supreme Court’s decision.

In the case of King v Sash Windows, Mr King was also held by the Tribunal to be a worker (and not self-employed as asserted by his employer) and so entitled to paid annual leave. The employer argued that the Working Time Regulations 1998 provide that if the paid holiday is not taken in a leave year, then it is lost.

The CJEU disagreed. It held that if a worker is prevented from taking their paid holiday because the ’employer’ won’t grant the paid holiday, they are being prevented from exercising EU rights and they cannot be stopped from bringing a claim just because a new holiday year has started. It went on to say that an employer who fails to grant a paid holiday to workers should not be entitled to benefit from the normal limits on how much can be carried over so workers could claim back to 1996 when the original Working Time Directive came into force.

The King decision brought holiday pay into sharp focus for employers yet again. A holiday pay claim now had the potential to be costly with the possibility of having to pay holiday pay dating back several years.

The issue for the Court of Appeal in the Pimlico case this time round was whether Mr Smith could seek repayment of the 4 weeks’ leave required by the Working Time Directive carried over each year until he stopped working for Pimlico Plumbers. The tribunal and EAT had previously determined that he could not rely on the case of King v Sash Windows which, in their view only applied to leave which had never been taken.

However, the Court of Appeal disagreed.

Lady Justice Simler, giving the only substantive judgment, reversed that decision, holding:

“The language of Article 7(1) [of the Working Time Directive], article 31 of the Charter [of Fundamental Rights of the EU], and King establishes that the single composite right which is protected is the right to “paid annual leave”…If a worker takes unpaid leave when the employer disputes the right and refuses to pay for the leave, the worker is not exercising the right…[T]o lose it, the worker must have had the opportunity to exercise the right conferred by the [Working Time Directive]. A worker can only lose the right to take leave at the end of the leave year (in a case where the right is disputed and the employer refuses to remunerate it) when the employer can meet the burden of showing it specifically and transparently gave the worker the opportunity to take paid annual leave, encouraged the worker to take paid annual leave and informed the worker that the right would be lost at the end of the leave year. If the employer cannot meet that burden, the right does not lapse but carries over and accumulates until termination of the contract, at which point the worker is entitled to a payment in respect of the untaken leave.”

Lady Justice Simpler also went on, on a nonbinding part of the judgment to confirm her view that the EAT’s decision in Bear Scotland v Fulton, which held that tribunals cannot award backpay for unpaid holiday leave beyond any 3-month break in unpaid EU holiday leave, was wrongly decided.

This latest Pimlico Plumbers decision provides additional clarification of the law in relation to holiday pay – but does it mark the end of the saga? I suspect not!

So, employers beware! And readers – until next time. A further blog awaits!

This blog was written by Kate Lea, Senior Solicitor at didlaw.