Potential New Exception to the ‘Use It Before You Lose It’ Principle

The appeal of The Sash Window Workshop Ltd and another v King case has led to the submission of questions to the European Court of Justice as to whether workers can carry over untaken holiday if they are unable to take annual leave for “reasons beyond their control”.

Mr King worked as a commission only, self-employed salesman for Sash Windows from 1998 until his employment was terminated in 2012. Throughout this time, Mr King was not paid for annual leave taken as both he and his employer believed he was self-employed and therefore not entitled to payment. In 2008, Mr King was offered, but declined, a contract of employment. Upon termination of his employment, Mr King brought a claim for his unpaid holiday pay and payment in lieu of the accrued but untaken annual leave for the duration of his time at Sash Windows.

Mr King stated while he did take a holiday each year, adequate notice was to be given to prevent too many salesmen being away at any one time, and he tried not take too much he did not earn commission on holiday. He added that if he were aware he was entitled to paid leave, he would have taken more than he did.

The case of NHS Leeds v Larner, which Mr King relied upon, established those on long term sick continued to accrue holiday and could carry over their accrued holiday when they are unable to take holiday due to sickness. Having established Mr King as a worker, the Employment Tribunal did not differentiate, in principle, between this example of long-term sick leave and Mr King’s position of not being able to take paid holiday and upheld Mr King’s claims. The employer’s appeal was allowed.

The appeal tribunal held that the original tribunal should have considered whether Mr King was “unable or unwilling to take annual leave because of reasons beyond his control”, rather than assuming his requests would have been refused. The case was remitted to the Employment Tribunal for this could be established as a finding of fact, rather than an assumption.

The appeal tribunal did not question the acceptance of whether holiday can be carried forward, and seem to conclude this will be possible if reasons beyond the employee’s control can be established.

Mr King appealed this remittal to the Court of Appeal who have submitted the following questions to the European Court of Justice for guidance:

Is it compatible with EU law if a worker has to take unpaid leave before being able to establish he is entitled to paid leave?
If the worker does not take annual leave but would have if he would have been paid for it, can the worker say he is prevented from taking annual leave due to reasons beyond his control?
If annual leave does carry over, is this indefinitely or is there a time limit as with cases of long-term sickness?

This case is interesting for employers because it could add another exception to the ‘use or lose it’ principle of annual leave. The courts have already established in Larner that this can be carried over by those on long term sick, but could it now be the case that those unable or unwilling to take annual leave due to reasons beyond their control are also entitled to carry their leave over?

Following the hearing in the European Court of Justice on 29th March 2017, the opinion from the Advocate General, Evgeni Tanchev, was submitted on 8th June 2017. Evgeni Tanchev has concluded that “a worker, like Mr King, may rely on [EU law] to secure payment in lieu of untaken leave, when no facility has been made available by the employer, for exercise of the right to paid annual leave … Upon termination of the employment relationship a worker is entitled to an allowance in lieu of paid annual leave that has not been taken up.” Although this is not a binding opinion, the courts do tend to follow the advice of the Advocate General which suggests that the court may find in favour of Mr King.

With the European Court of Justice responding in favour of Mr King, it may be necessary to establish what constitutes a reason beyond an employee’s control. Clarity will be needed as this grey area could open the flood gates for claims from those on a self-employed basis or those established as workers at a later point in their careers. This distinction could be particularly severe if Mr King’s payment in lieu stretches to his start date in 1998.

While some might argue this will no longer be an issue post Brexit, the decision is likely to be reached beforehand and would apply for the duration of our membership. There is also a call from certain MPs for the UK to remain bound by the decisions of the Courts of Justice of the European Union and the Government has pledged to preserve worker rights in the Great Repeal Bill: the decision could continue beyond the UK’s departure from the European Union.

Until we receive clarification from the European Courts, employers who could be affected should establish whether self-employed workers are indeed considered staff under the legislation, and encourage all staff to use annual leave before they lose it.