Last year was a particularly interesting year for holiday pay cases and we start this year by looking at the decision in Sash Window Workshop Ltd and another v King UKEAT/0057/14 which was handed down by the Employment Appeal Tribunal ("EAT") in December 2014. In this case the EAT considered whether a worker had any entitlement to payment in lieu for untaken holiday going back a number of years, where it was alleged that such holiday was not taken due to it being unpaid.
The Working Time Regulations 1998 ("WTR") set out the minimum annual entitlements of each worker, comprising 4 weeks' paid holiday, as required by the Working Time Directive (2003/99/EC) and an additional 1.6 weeks' domestic entitlement. This case specifically looks at how the entitlement may be exercised and whether or not it can be carried over. The starting point for this is contained in regulation 13(9) which states that:
"leave to which a worker is entitled under this regulation may be taken in instalments but:
- It may only be taken in the leave year in respect of which it is due
- It may not be replaced by a payment in lieu except where the worker's employment is terminated
The basic principle, therefore, is that the minimum holiday entitlements as stated in the WTR may only be taken in the applicable leave year and payment in lieu may only be made where a worker's employment is terminated. Any additional contractual entitlements would not fall into this category and would be governed by the relevant contractual provisions.
In NHS Leeds v Larner  EWCA Civ 1034, the Court of Appeal, following a decision by the ECJ, held that statutory entitlement to paid annual leave was not lost where a worker was unable to take it as a result of extended sickness during the relevant leave year. In addition to finding that a worker's statutory entitlement should be carried over in these circumstances, it was held that the principle prohibiting payment unless employment has been terminated would still apply in these circumstances and therefore the worker should be permitted to carry the leave forward into the following leave year. A worker that on termination, remains entitled to leave carried over as a result of the exception to Reg 13(9), will be entitled to payment in lieu for the period of untaken leave.
Mr King was engaged as a commission only salesman by the Sash Window Workshop Ltd between June 1999 and October 2012 when he was dismissed upon reaching the age of 65. He worked as a self-employed salesman and was responsible for paying his own tax and national insurance. As part of this arrangement, he was not paid for holidays or sick leave, but in most years took three or four weeks' leave on an unpaid basis.
In addition to his complaint of unlawful age discrimination as a result of his dismissal, Mr King sought payment for:
- Holiday accrued but not taken in the year of termination
- Pay for leave taken in the previous years
- Pay for any holiday to which he was entitled, but did not take in the previous years
Initial decision by the tribunal
The tribunal held that:
- Mr King was in employment under Section 83(2) of the Equality Act 2010 for the purposes of his unlawful age discrimination claim
- He was a worker under section 230(3) Employment Rights Act 1996 and as such, he qualified for the paid holiday entitlements set out in the WTR
In considering the application of Larner, the tribunal saw "no difference in principle between being unable to take paid leave through sickness and being refused paid leave which would have been the position in this case had the claimant have asked for it".
Finding in Mr King's favour, the tribunal, in addition to allowing Mr King to recover under limbs (1) and (2) of his holiday pay claims, also awarded him holiday pay for holiday not taken in the previous years as a series of deductions from wages on a continuing basis (which was claim (3)).
The appeal and the decision by the EAT
The following key issue was appealed to the EAT regarding holiday:
- Whether, in relation to limb (3) of Mr King's holiday pay claim, he was entitled to payment for the holiday which he was entitled under the WTD but did not actually take in any of the relevant years e.g. the amount of Mr King's 4 week entitlement which was untaken in the leave years ending 31 December 2008 and the amount of his 5.6 week entitlement which was untaken from 1 June 2009
The EAT held that Tribunal should not have simply concluded that Mr King was unable to take paid leave on the basis that if he had requested it, his request would have been rejected without considering the evidence, stating that these were "questions of fact which required findings based on evidence and not assumptions". Instead, following the decision in Larner, the starting point should be to consider the general prohibition on carrying WTR leave forward, save in circumstances where a period of sick leave meant that the worker was unable or unwilling to take it. Whilst sick leave was not relevant in the circumstances of the present case, it was accepted that there may be reasons where a worker "was unable or unwilling because of reasons beyond his control, to take annual leave and as a consequence did not exercise his right to annual leave" and the tribunal should have gone on to consider whether any such reasons applied in this case. Interestingly, whilst there was evidence that Mr King would have taken more leave if it had been paid in more recent years, Mr King had in fact taken his full leave entitlement on an unpaid basis between 2003 and 2007.
The EAT also considered the Tribunal's finding that Mr King was entitled to claim payment in lieu for untaken leave as a series of deductions from wages on a continuing basis. The EAT held that as Mr King had been working and would have been paid in full for the periods which would otherwise have been taken as leave, he had not suffered a loss of wages. Instead he had lost the health and welfare benefits of taking leave. A claim on this basis would be a claim for the failure to permit a worker to exercise a right to paid holiday or a failure to pay holiday pay under WTR regulation and if successful, would result in an award of just and equitable compensation, having regard to the employer's default in refusing to permit the exercise of these rights and the loss sustained by the worker as a result. The EAT went on to say that in any event, when considering a claim for a series of deductions from wages, the tribunal would have to take account of the finding in Bear Scotland Ltd and others v Fulton and others UKEAT 0047/13BI that a gap between deductions of more than 3 months will extinguish a Tribunal's jurisdiction to hear a complaint.
At a first glance, the EAT has gone further than the Court of Appeal in Larner, in widening the scope of reg 13(9) exception to include not only workers who are unable to take leave in previous annual leave years due to sickness, but also those workers who are unwilling or unable to take leave for reasons beyond their control.
However, the practical impact of this would appear to have been significantly reduced by the EAT's finding that Mr King could not claim a series of deductions from wages for the period of untaken leave. He would have been paid for working during that time and further that his actual loss was the loss of health and welfare benefits associated with taking leave, which could not be remedied as part of a series of deductions from wages claim.
This will significantly reduce the initial implications of the EAT's decision and it would seem that only workers on other forms of unpaid leave (and therefore suffering a deduction) who are unable or unwilling to take annual leave for reasons beyond their control may seek to claim on this basis of a series of unlawful deductions, providing that there has not been a gap of more than 3 months between deductions.
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