I have written in this blog on many occasions about the importance of getting it right if you are going to treat all or part of your workforce as self-employed, rather than as fully fledged workers or employees. As you may recall, the Pimlico Plumbers case earlier this year ruled in favour of the claimants, finding that they were workers rather than being “fully” self-employed and therefore entitled to holiday pay and other benefits. The issue has been a hot topic throughout 2017 with the Uber and Addison Lee cases for example showing a willingness on the part of the courts to find that there was an employment relationship where, previously, there was assumed not to be.

But what should be the basis for calculating losses if an entitlement to retrospective holiday pay or other benefits is established? The normal cut off point for calculations is six years, since this is the time limit for claims based on breach of contract. However, the entitlement to paid holidays arises under the EU Working Time Directive and thus has a statutory footing.

This issue was recently considered by the Court of Justice of the European Union (CJEU/ECJ)  and judgment was delivered in the case of King v The Sash Window Workshop Limited and Dollar on 29 November. Mr King had started working for The Sash Window Workshop (“the Company”) in June 1999 on a “self-employed commission only contract”. He continued to work for the Company until his retirement in 2012. He took numerous holidays during the 13 years that he worked for the Company, but was not paid for them. Following his retirement he asked to be paid all his holiday pay for the entire period of his engagement. Unsurprisingly, the Company refused.

Mr King took his claim to an employment tribunal which held that there were in effect three types of holiday claims: (i) holiday pay for 2012-13 accrued but untaken when he left, (ii) holiday pay for leave actually taken but in respect of which no payment was made and (iii) pay in lieu covering accrued but untaken leave (amounting to a further 24.15 weeks). The tribunal found that Mr King was a worker (within the meaning of the statutory definition – see the Pimlico case) and therefore ruled in his favour in respect of all three.

The Company appealed to the Employment Appeal Tribunal and succeeded. Mr King appealed to the Court of Appeal which, in turn, referred the question of entitlement to holiday pay to the ECJ.

The ECJ took the view that a worker must be entitled to benefit from the remuneration he was entitled to receive pursuant to Article 7 of the Directive. This was to apply even if holiday entitlement and pay was claimed to be forfeited if not taken within the year in which the entitlement accrued. This applied both in respect of holidays taken but not paid and holidays accrued but not taken and not paid for. In particular, it was not possible to exclude the right to be paid for holidays, contractually or otherwise.

A worker making such a claim should be put in a position comparable to that which he would have been in had he enjoyed the right during the employment relationship. It followed that the entitlement should be calculated with reference to the entire period during which Mr King worked for the Company.

As I am sure you will have gathered, the upshot is that some companies with ostensible self-employed workers could be paying some very hefty back pay claims for holidays. The Working Time Directive (from which this right is derived) came into force in 1996, providing for workers to be entitled to four weeks’ paid holidays a year (this was subsequently increased domestically to 5.6 weeks). Therefore, based on the Directive, if someone had been working since 1996 but had not been paid for holidays, they could be entitled to 80 weeks’ holiday pay (based on 20 full years of service). It is therefore reasonable to assume that with a potential prize equivalent to up to a year and a half’s salary, it is only a matter of time before a large number of valuable claims are made.

It is also worth bearing in mind that the decision appears also to preclude the forfeiting of holiday pay accrued but not taken and this (subject to the limit of four weeks’ pay arising pursuant to the Directive) could be relevant for employees as well as ostensibly self-employed workers.