The Court of Appeal decision in Smith v Pimlico Plumbers made this week is likely to have a significant impact on employers who engage so-called “independent contractors” who are in fact workers.
In light of the ruling, any worker who has not received paid leave because they have been treated as self-employed and brings a claim within 3 months of their engagement terminating, will potentially be able to claim unpaid holiday pay.
We recommend reviewing the terms of anyone you engage on a self-employed basis to consider their true employment status. If they are a classified as a ‘worker’ they are entitled to holiday pay.
Mr Smith worked for Pimlico Plumbers as an engineer between 2005 and 2011. Throughout his engagement, Pimlico Plumbers maintained that Mr Smith was an independent contractor and as such was not entitled to paid annual leave. However, Mr Smith did take periods of unpaid leave. Following termination of his contract, Mr Smith brought a holiday pay claim in relation to unpaid annual leave.
In 2018 the Supreme Court held that Mr Smith was a worker, not an independent contractor.
What happened next
An Employment Tribunal dismissed Mr Smith’s holiday pay claim on the basis that it was brought out of time. The Tribunal also drew a distinction between Mr Smith who had taken unpaid leave, and an individual who had been denied the opportunity to take leave because he knew the leave would be unpaid.
The EAT dismissed Mr Smith’s appeal on the basis that the right to carry-over holiday entitlement only applied to leave that was not taken because of the employer’s failure to pay for such leave.
Mr Smith’s second appeal has succeeded. The Court of Appeal reached its decision based on the principle that untaken annual leave can be carried over indefinitely where the worker is deterred from taking leave because it will not be paid – and this applies equally to leave which is taken but unpaid.
‘Use it or lose it’
Under the Working Time Regulations, employers are permitted to implement a ‘use it or lose it’ policy, however this only applies when the worker has had the opportunity to take paid annual leave. It is important that employers can demonstrate that workers have the right to paid annual leave and that they have been informed that the right will be lost at the end of the holiday year if not used.