Pimlico Plumbers – right to paid annual leave

Many people will have heard of the ongoing case of Smith v Pimlico Plumbers, which has been running since 2011. In a recent landmark ruling, the Court of Appeal held that Mr Smith was entitled to payment for accrued annual leave during his time at Pimlico Plumbers.

Facts of the case

Mr Smith worked for Pimlico Plumbers from August 2005 until May 2011. Pimlico Plumbers maintained that Mr Smith was a self-employed contractor and, therefore, was not entitled to paid annual leave. Mr Smith nevertheless took periods of leave from time-to-time, but these were always unpaid.

When his contract was terminated, Mr Smith brought a number of claims, including a holiday pay claim regarding the unpaid annual leave he had taken. The first legal question to be considered was the employment status of Mr Smith. In 2018, the Supreme Court confirmed that Mr Smith was a worker, not an independent contractor. Mr Smith then proceeded to pursue his claims.

Legal background

• Workers are entitled to 5.6 weeks paid annual leave per year.
• Workers whose rights to paid leave are denied, or whose holiday pay is not correctly calculated, can bring a claim either:
  • Under the Working Time Regulations 1998 (WTR), within three months of the relevant breach, or
  • For unlawful deduction from wages, within three months of the last of the ‘series’ of unlawful deductions.
• In an unlawful deduction from wages claim, there is a two-year limit on any back payments.

Employment tribunal (ET) decision

The ET dismissed Mr Smith’s holiday pay claim on the basis that it was brought out of time. The ET rejected Mr Smith’s argument that the decision in King v Sash Window Workshop entitled him to bring, on the termination of his engagement, a claim in respect of all unpaid annual leave accrued throughout his work at Pimlico Plumbers, both taken and untaken. In the case of King v Sash Window Workshop, the Court of Justice of the European Union (CJEU) held that workers must not be prevented from carrying over paid annual leave rights. However, the ET stated that the difference in that case was that the individual had been denied the opportunity to take leave because he knew he would not be paid for the leave, so had not done so.

Mr Smith appealed to the employment appeal tribunal (EAT) on the basis that the ET had erred in its approach to King v Sash Window Workshop and that the claim was not out of time.

Findings at the EAT

The EAT dismissed Mr Smith’s appeal and found that the ET had not erred in its interpretation of King v Sash Window Workshop. The EAT upheld the ET’s ruling that Mr Smith had not put in his claim for backdated holiday pay quickly enough. Under tribunal rules, he should have made his claim for missed pay within three months of each holiday period, dating back to 2005. They stated that the King v Sash Window Workshop case was not concerned with leave that had been taken but was unpaid, as in Mr Smith’s case, and that the carry-over rights set out in the case relate to leave that was not taken as a result of the employer’s failure to remunerate such leave.

Mr Smith appealed to the Court of the Appeal (CA).

Findings at the CA

The CA concluded that Mr Smith’s appeal should succeed. The judgment made by Lady Justice Simler stated that the language of article 7(1) and article 31 of the Charter of Fundamental Rights of the European Charter (‘the Charter’) and King v Sash Window Workshop establishes that a 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. The judgment goes on to state that a worker can only lose the right to take leave at the end of the leave year when the employer can meet the burden of showing that it:

• Specifically and transparently gave the worker the opportunity to take paid annual leave.
• Encouraged the worker to take paid annual leave.
• Informed the worker that the right would be lost at the end of the leave year.

Lady Justice Simler stated that:

• ‘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.’

In summary, the CA held that workers who had been denied the entitlement to paid annual leave are entitled to four weeks’ leave per year regardless of whether they have taken any unpaid time off or not. This entitlement carries over each year and will establish a composite right to payment in lieu upon termination of the contract.

Conclusion

This case will significantly impact employers who have incorrectly categorised individuals as ‘self-employed’ rather than ‘workers’. For claims brought under the Working Time Regulations, the two year backstop on unlawful deductions from wages is no longer relevant. Provided a claim is brought within three months of termination, a worker can claim back pay for the whole period in which they were denied the right to paid holiday.

This means that the financial costs to employers of wrongly denying worker status are potentially very high. In Mr Smith’s case, he was awarded £74,000.

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