Worker Status & Holiday Pay – Pimlico Plumbers Case

Worker Status & Holiday Pay – Pimlico Plumbers Case

Introduction

Worker Status. A recent ruling by the Court of Appeal could have significant implications for employers who improperly engage workers as contractors, or have workers who were previously classified as self-employed, as well as those whose staff receive any kind of variable pay.

Background

Gary Smith, a heating engineer, successfully claimed against Pimlico Plumbers at the Supreme Court that he was not self-employed and was in fact a worker.

Under tribunal rules, workers can claim for missed pay within three months of each holiday period, so in 2019 the Employment Tribunal ruled that Mr Smith had not filed his claim for holiday quickly enough. Mr Smith appealed and claimed that the tribunal was wrong to rule that he was not entitled to over £74,000 of holiday pay, accrued over his six years’ service. Mr Smith’s appeal was unsuccessful, and last year the Employment Appeal Tribunal (EAT) upheld the tribunal’s ruling.

However, on 1^st February 2022, Lady Justice Simler reversed that decision at the Court of Appeal.

Further Information

Lady Justice Simler stated that, contrary to the tribunals’ decision, “this claim was in time because he was denied the opportunity to exercise the right to paid annual leave throughout his engagement with [Pimlico Plumbers]”. In accordance with her judgement, a worker can only lose their right to take annual leave at the end of the leave year if the employer can demonstrate that it:

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

(This is the same notion if you were implementing ‘use it or lose it’ holiday policies to your employees).

If the employer is unable to demonstrate the above, the worker carries over their annual leave until their contract terminates, “at which point [the worker] is entitled to a payment in respect of the untaken leave”.

Whilst the amount Mr Smith may receive is yet to be determined, the financial implications to employers could be huge. The government did establish a two-year backstop for these kinds of holiday pay claims, but this decision provides opportunity for a future case to contest whether that backstop is lawful.

So, what is the risk to employers?

If you engage individuals on a self-employed basis, as well as the risk of claims that they are a worker (or employees), you could also receive claims for backdated holiday pay. If your contractors are genuinely self-employed (not just on paper, but in the reality of the relationship), then this is not a risk as genuinely self-employed are not entitled to holiday pay.

What about staff who receive variable holiday pay?

As you may know, if an employee or worker receives variable pay, they should receive their average pay for the first four weeks of holiday taken, calculated over their preceding 52 weeks’ pay.

There is potential that employers could face the risk of backdated claims for underpayment of holiday when their employment comes to an end, even if significant time has passed since they last took holiday.

Actions

• Check that your self-employed contractors are genuinely self-employed and not workers (or employees)!
• Communicate to employees and workers about their holiday entitlement, provide them with opportunity to request and take holiday, and make them aware that they will lose the holiday at the end of the year if they do not take it.
• Ensure that you (or your accountants) are calculating holiday pay correctly for employees and workers.

For further guidance on employment status and holiday pay, please visit www.yourhr.guide.

For further general HR guidance and information, and HR templates, please visit www.yourhr.guide.

Natalie Rodda

If you feel that you need guidance or advice on this matter, please call Practical HR on 01702 216573