The European Court of Justice ("ECJ") has handed down its judgment in King v The Sash Window Workshop Ltd and held that a UK worker incorrectly classified as a self-employed contractor has the right to backdated holiday pay. The decision will have an important impact on holiday pay rights in the UK.

What was this case about?

Mr King was wrongly classified as a self-employed contractor.  His contract contained no provision for holiday. He was not paid for holiday he took and, as a result, took substantially less holiday than he was entitled to.  After his engagement was terminated in 2012, he brought a claim asserting that he should receive back pay for all the holiday which he did not take over the 13 years of his engagement. His claim was successful at the Employment Tribunal but that decision was overturned by the Employment Appeal Tribunal. The Court of Appeal referred the case to the ECJ to consider whether the UK Working Time Regulations ("WTR") were incompatible with the EU Working Time Directive. The key question was whether Mr King should be allowed to carry over his full amount of untaken leave in spite of the provision in the WTR stating that leave may only be taken in the year in respect of which it is due and cannot be carried over.

What were the key findings?

The ECJ made the following key findings:

• Preventing a worker from taking paid holiday is a breach of EU rights and these rights should not be curtailed by a national law which prevents the rolling over of holiday. An employer who seeks to prevent a worker from taking annual leave, whether by failing to pay them for that leave or otherwise, must bear the consequences of that and should not benefit from a provision which limits carry over of holiday.
  
  
• Most importantly, a worker bringing a claim in such circumstances can carry over and accumulate paid annual leave rights, without being subject to a cap (as has been the situation in case law regarding sickness absence and failure to include overtime/commission payments in holiday pay calculations).
  
  In addition, it's important to note that:
  
  
• This judgment only applies to the 20 days of annual leave provided for under EU law – and not to the additional 8 days under UK law or any additional contractual entitlement.
  
  
• For now at least, the following remain applicable:
  
  
  • the regulations which prevent workers looking back more than 2 years where holiday pay has been underpaid (rather than not paid at all); and
    
    
  • the case law which indicates that a claim in respect of underpaid holiday pay will be time barred where there is a longer than 3 month gap between underpayments;

  However, this judgment clearly opens the door to a legal challenge to both.

  What does it mean for employers?

• There is significant potential liability in relation to holiday pay claims from self-employed contractors who are able to demonstrate successfully that they are workers and have been denied the opportunity to take holiday. Following this case, such individuals who have long service will be able to bring high value claims for unpaid holiday pay.
  
  
• If they are not already doing so following other recent developments in relation to employment status (see "Uber and Deliveroo – Different answers to the same question" and "The Budget - Personal service companies, tax and employment status"), businesses that use self-employed contractors should be examining their arrangements to ensure that employment status risks are minimised, including considering reclassification to worker or employee status and adopting alternative models of engaging consultants (e.g. outsourcing and use of agency workers). This case highlights the potential liability lurking where businesses get this wrong.