Employment status just got more expensive for employers

Holidays should be joyous, fun and relaxing. But holiday legislation is anything but that for anyone who works in HR. It fills all of us (well, HR and employment law advisers) with just a little bit of dread. Calculators come out, legal text books, telephone calls to legal advisers and lots of scratching of heads and crossing of fingers. Is this euro leave or is it UK? What do they normally work? What do they normally get paid? And even if we do all of that, another case just comes along and tells us that we have been doing it wrong all along.

So what now?

Yes, you're right, the reason I'm writing this is because we have had another holiday pay case which potentially calls into question issues in relation to 3-month gaps in deductions and the 2-year limit on deductions introduced by the government a couple of years ago. It also opens up the possibility of those who have been prevented from taking their statutory leave to being able to claim the pay that they should have received for that leave – potentially back to 1998.

And - as we all now know - claims are now free to bring in the Employment Tribunals once again and so all employers are far more exposed to speculative monetary claims of this nature in a way which was far less likely only six months ago.

But before we get down to the nitty gritty, let’s have a bit of a revision session on what the law says about holidays.

Let’s revise holiday pay (yes, lets!)

The law provides a right under the Working Time Regulations 1998 (WTR 1998) to a total of 5.6 weeks' annual leave in each 'leave year'. This entitlement is made up of:

a basic entitlement to a minimum of four weeks' annual leave (20 days for a 
regular full-time worker) (regulation 13(1) WTR 1998) each leave year, 
implementing the right to annual leave under the Working Time Directive (WTD)(Article 7); and

an additional entitlement to 1.6 weeks' annual leave (eight days for a 
regular full-time worker) each leave year, which is a right under domestic 
legislation only (regulation 13A WTR 1998).

The WTR 1998 entitle a worker to be paid:

during their statutory holiday entitlement (regulation 16); and
in lieu of any statutory holiday entitlement accrued but unused on 
termination of employment (regulation 14)

Regulation 13(9) of the WTR 1998 prevents statutory annual leave being 
carried over from one leave year to the next or for a payment in lieu to be 
made except on termination of employment.

These provisions make it clear that anyone who chooses to work throughout a leave year and does not take their entitlement to that leave will then end up sacrificing that entitlement. It will not get carried over from one year to the next and they will not be entitled to payment in lieu of that lost entitlement on termination of employment – for the reason that it has been lost.

What happens if we underpay?

We have also had the very important and high-profile Bear Scotland (formerly referred to as Freightliner) case which introduced a new interpretation of the 3-month time limit rule for deduction from wages claims. 

More revision…..

Bear Scotland looked at whether holiday pay should just be basic pay or whether it should include other elements such as overtime and other allowances on the basis that workers shouldn’t be worse off when they are on holiday as otherwise it disincentivises workers from taking their holiday and given that the overriding objective of the Working Time Directive was a health and safety one – to only pay basic pay would not be good for health and safety. 

In many respects the decision was expected. It ruled that workers should receive normal pay during holiday. The implications though were very significant indeed. This is because if you have been underpaid this is a deduction from earnings under section 13 of the Employment Rights Act 1996. And there is no restriction on how far back claims can go if they are part of a continuing deduction. This could have easily bankrupted many firms who had long serving employees as the deductions could have gone back to 1998.

In Bear Scotland the EAT held that a tribunal will not hear claims if there is a gap of more than three months between one series of deductions and the next. This limitation of the impact of deduction from wages claims was further reduced by the government’s introduction of The Deductions from Wages (Limitation) Regulations 2014 which limited any claim (even where there was no 3-month gap) to 2 years.

These changes helped reduce the impact on employers but did not change the fact that we all needed to start doing horrendously complicated calculations on holiday pay and also make a judgment call about what is normal and what isn’t normal – what to include and what to exclude and how to communicate this to the workforce.

What is the effect of King?

-      The importance of employment status

The Working Time Regulations apply to employees and workers – not to the self-employed. So, at first glance this case seems to be a non-starter. Mr King isn’t entitled to holiday because he is self-employed. He is not a worker. It is therefore not surprising that his contract did not provide for any holiday and given that his contract did not provide for any paid holiday it is also not surprising that Mr King did not ask for or take any holiday during his 13 years with the company.

But as you have no doubt seen the courts are awash with cases from the self-employed challenging the genuineness of that status and trying to secure rights that are afforded to workers such as holiday pay and national minimum wages rights as well as allowing discrimination claims to be brought as well. The cases include those against Deliveroo, Addison Lee, Uber, Pimlico Plumbers, City Sprint and the case brought by the British cyclist Jess Varnish against British Cycling and UK Sport.  

For most employers this case may (at first glance) appear to have limited relevance. But the case has also looked at one very important principle which may extend beyond the initial application of Mr King and other self-employed workers.  

?You are not permitted to prevent workers and employees from taking their leave

Or to put it another way, if you prevent a worker or employee from taking their leave then you will be in breach of the regulations.

Prior to the King decision the structure of the UK’s WTRegs effectively requires a worker to be refused leave before being able to enforce their rights (to show that he has been prevented from taking statutory holiday). Therefore, if there is any provision which prevents any of your workers or employees from taking their holiday then this will not be enforceable in any way.  

Don’t forget – tribunal claims are now free to bring

Of course, you need to be extremely mindful to the challenges that are being made by the self-employed. If you have contractors, self-employed or any other category of which falls outside of worker or self-employed then they may challenge their status and open the possibility for claims of many thousands of pounds being brought for holiday pay. You may think that these well-established self-employment relationships and arrangements are clearly drawn, but in light of the current developments in case law and the challenges in the pipeline you may wish to review your arrangements, or at the very least being to assess your potential exposure to such claims.

 Matthew Huggett Tel: 07496 126266 [email protected]