Employment Insight - Holiday pay developments

16 February 2022

Continuing the trend of recent years, there have been some further developments relating to the right to paid holiday in circumstances where an individual disputes their employment status. 

In the long running dispute of Smith v Pimlico Plumbers, the Court of Appeal has confirmed that an individual who had been incorrectly classified as an independent contractor (who was not entitled to paid holiday) could bring a claim for his accrued leave from the start of his employment. The Court confirmed that the holiday pay due for the full period of employment 'crystallised' on termination meaning the claim was not for a 'series of deductions'. As a result, the statutory two-year backstop which had been introduced to limit these claims (and therefore an employer's liability) did not apply. 

Following the Judgment, the Court added a postscript with suggested wording which should be read into the Working Time Regulations 1998 to allow workers to carry forward holiday which they have taken but which has not been paid. The purpose of this was to ensure that the Working Time Regulations correctly reflected the EU Working Time Directive and protected the holiday entitlement of individuals whose employment status had been incorrectly determined by their employer. 

The practical effect of this case is to significantly increase the potential liabilities in disputes about employment status, particularly where a group of individuals are involved or have been engaged for a long time. It may also mean that individuals are not so easily prevented from bringing claims because of the Tribunal's strict time limits, as they will now have 3 months from the date termination to do so. 

The case serves as a useful reminder for employers to review the employment status of independent contractors regularly and ensure that management are clear on how these individuals should be engaged. 

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