Employer must provide ‘adequate facility’ to take annual leave, says Advocate General

Introduction

Under the WTD, all workers are entitled to four weeks’ paid annual leave. This deceptively simple principle has bred a multitude of cases, perplexing employers (and infuriating Eurosceptics) by expanding workers’ holiday rights in unforeseen ways. Most of the cases have focused on the right to paid holiday when off sick and on which elements of remuneration should be included within holiday pay.

The recent AG opinion in King v The Sash Window Workshop Ltd, if followed by the ECJ, will extend employers’ liabilities in a new direction by requiring that they must provide an “adequate facility” for workers to exercise their right to paid leave. If an employer does not provide such a facility, its workers will not lose their right to paid holiday simply because they have not sought to take it. They will be able to carry their entitlement forward into subsequent holiday years. On termination of employment, the employer will have to pay in lieu of a worker’s untaken leave for the whole period during which no such facility existed.

The key point here is that sometimes an individual qualifies as a “worker” even though both employer and worker mistakenly believed them to be genuinely self-employed and so not entitled to paid holiday. The AG’s opinion seems to place the burden for such mistakes firmly on the employer.            

History of the case so far

Mr King started working for Sash Window Workshop Ltd (“SWW”) on 1 June 1999. He was a salesman paid on a commission-only basis and had no contractual right to paid holiday. SWW offered Mr King a contract of employment that included a right to paid holiday in 2008, which he refused. Mr King was dismissed on 6 October 2012 (his 65^th birthday). He started proceedings for holiday pay, among other claims.

The Employment Tribunal found that Mr King was a “worker” under the Working Time Regulations 1998 (“WTR”). This aspect of its decision was not subsequently appealed. The Tribunal went on to find that Mr King was entitled to the following holiday pay (as a series of unlawful deductions from wages):

• Holiday pay 1: for leave accrued but untaken during his final leave year.
• Holiday pay 2: for unpaid leave he has actually taken while working for SWW.
• Holiday pay 3: for all leave to which he had been entitled while working for SWW but had not taken.  

The finding  on “holiday pay 3” was not on its face consistent with regulation 13(9) of the WTR, which states that holiday may only be taken in the leave year in which it falls due. The Tribunal reached its decision on the basis that Mr King had been prevented from taking the holiday, because SWW would have refused to pay it if requested. The Tribunal relied on NHS Leeds v Larner [2012] IRLR 825, in which the Court of Appeal ruled that if a worker could not take annual leave in the correct year because of sickness, it could be carried over into the next holiday year.  

SWW appealed this part of the decision to the Employment Appeal Tribunal (“EAT”), arguing that if Mr King was not prevented from taking the leave by circumstances outside his control, the principle in Larner should not apply. The EAT allowed the appeal saying that the Tribunal had not made sufficient findings of fact that Mr King had been prevented from taking holiday.

The EAT also criticised the Tribunal for allowing the claim for “holiday pay 3” as a series of “unlawful deductions from wages”. As Mr King was paid his wages for the periods he would otherwise have taken as holiday, the EAT said that what he had lost was the health and welfare benefits of taking holiday. Where the complaint is that a worker was not allowed to exercise the right to holiday, the award is such compensation as is just and equitable (under regulations 30(3) and (4) of the WTR). The EAT considered this was damages rather than wages, so could not be claimed via an unlawful deduction claim under the Employment Rights Act 1996 (“ERA”). A worker could not therefore rely on the argument that there was a “series of deductions” to try to extend the time limit for bringing a claim, which under the WTR should be brought within three months of the act complained of.

Mr King appealed to the Court of Appeal (“CA”), which identified various issues of EU law that needed clarification. First, it questioned whether regulation 13 of the WTR was consistent with the WTD and the right under EU law to an effective remedy given that, if the EAT was correct, a worker would have to take leave and would only afterwards be able to test whether it must be paid. Secondly, the CA sought clarification as to the circumstances in which leave could be carried over and whether it could be carried over indefinitely.

Questions referred to ECJ

The specific questions referred by the CA to the ECJ were as follows:

1. If there is a dispute between a worker and employer as to whether the worker is entitled to annual leave with pay pursuant to [the WTD], is it compatible with EU law, and in particular the principle of effective remedy, if the worker has to take leave first before being able to establish whether he is entitled to be paid?
2. If the worker does not take all or some of the annual leave to which he is entitled in the leave year when any right should be exercised, in circumstances where he would have done so but for the fact that the employer refuses to pay him for any period of leave he takes, can the worker claim that he is prevented from exercising his right to paid leave such that the right carries over until he has the opportunity to exercise it?
3. If the right carries over, does it do so indefinitely, or is there a limited period for exercising the carried-over right by analogy with the limitations imposed where the worker is unable to exercise the right to leave in the relevant year because of sickness?
4. If there is no statutory or contractual provision specifying a carry-over period, is the court obliged to impose a limit to the carry-over period in order to ensure that the application of [the WTR] does not distort the purpose behind [the WTD]?
5. If so, is a period of 18 months following the end of the holiday year in which the leave accrued compatible with the [WTD] right?

The AG’s opinion

The AG considered that the pre-existing case law on exercising the right to paid annual leave was not relevant to the issues raised Mr King’s case. This was because all those cases concerned the conditions a member state could impose on exercising the right to annual leave (such as periods of carry over). In contrast in this case, the essence of the right was in issue as there was no facility within the employment relationship for the exercise of the right in the first place.

The AG concluded that “employers are bound to provide adequate facilities to workers for the exercise of the right”. Provision of an adequate facility might be specific contractual terms conferring the right to paid leave or the establishment of a legally enforceable administrative procedure through which an application could be made to employers by workers. Only once the facility has been provided, can any restrictions on the exercise of the right to leave begin to apply.

Turning to the five questions referred to the ECJ, the AG opined as follows:

• The answer to question 1 was that it was not compatible with EU law to require a worker to take leave before knowing whether he would be paid for it. Such a position would require the worker to take steps to secure the creation of the facility, when it should be the employer’s obligation.   
• The answer to question 2 was that if the worker does not take annual leave because the employer refuses to pay him for it, he can claim he was prevented from exercising his right to paid leave such that the right carries over until he has the opportunity to exercise it.
• The answers to questions 3 to 5 were that the worker is entitled to an allowance in lieu of untaken paid leave up until the date that the employer made an adequate facility available. It is only once the facility has been provided that any restrictions on the exercise of the right could start to apply.

In Mr King’s case, the AG said that the offer of employment in 2008 which included a right to paid holiday might have been an “adequate facility” for the exercise of the right to paid leave. It would be up to the CA to decide this issue. If so, any restrictions on the exercise of the right to paid annual leave imposed under the WTR that were compatible with EU law (such as carry-over periods) could commence from this point. If not, Mr King would be entitled to an allowance in lieu of paid holiday for the whole of his relationship with SWW.

Implications

We now must wait for ECJ’s judgment to see whether it follows the AG’s opinion. If it does, this will place the burden on employers to ensure they have made a correct assessment as to a worker’s rights to paid holiday. If the employer gets it wrong, the limitation period for bringing a claim in respect of holiday for the whole period of employment does not start to run until the termination date. Workers could potentially build up years’ worth of holiday pay claims.

If the employer starts to offer paid holiday part-way through the relationship, it seems the limitation period to bring claims would start from that point. As workers have no right under the WTR to pay in lieu of holiday until termination, in this scenario the worker would have to try to exercise the right to take the accrued paid holiday. If there was too much for the worker to take in what remained of that holiday year, he would probably be able to carry the balance over and take it in the following holiday year.

Even if the ECJ agrees with the AG’s approach, this case still has some way to go. It will ultimately return to the CA, where there may be arguments over whether it is possible for the WTR to be interpreted in this way. The position with regard to time limits and backdating of claims will still need to be finalised and clarified – in particular, whether the EAT was correct that these types of cases should be brought under the WTR, based upon refusal to permit the worker to exercise the right to paid annual leave, rather than as deductions from wages claims under the ERA.

Claims brought under the WTR must be brought within three months of the date on which leave should have been permitted to begin, or within such further period as the tribunal considers reasonable where it was not reasonably practicable to bring the claim in time (regulation 30).

Ostensibly, Mr King would be out of time to bring such a claim. The CA may decide that it is possible to give the WTR a purposive construction to extend the time limit to bring a claim under regulation 30, or it might accept that it was not “reasonably practicable” to bring the claim earlier. If it were to do so, it is not clear what compensation Mr King could hope to recover. Would a “just and equitable” amount of compensation be the same as the holiday pay he would have been paid if he had gone on holiday, or would it be a different amount calculated according to his loss of health and welfare?

King v The Sash Window Workshop Ltd – AG’s opinion available here