Worker classification crucial as case opens floodgate for holiday back-payment

worker classification

12th December 2017

Worker classification and holiday pay has long been a challenge in the world of contractor placement and management. And with high-profile employment status cases making headlines – with Uber and Deliveroo just a few such examples – ensuring workers are classified correctly in order to ascertain their appropriate entitlements is now more vital than ever before.

And it would appear that the risks associated with incorrectly judging an individual’s status are increasing, with a ruling by the Court of Justice for the European Union (CJEU) at the end of last month potentially opening up a flood of back payments for employers.

King v Sash: an overview

In the case of King v The Sash Window Workshop Ltd, the employment status of Mr King and subsequently his entitlement to paid holidays was questioned. Having been engaged by the firm seemingly as a ‘self-employed consultant’ over a 13-year period, the employer deemed that King was not entitled to statutory holiday pay under the Working Time Regulations (WTR). As such, during his time with the company he took a number of unpaid holidays.

Despite an offer of an employment contract in 2008, King continued to work with the firm as a consultant until 2012 when his relationship with the firm ended. It was at this time that he sought compensation for holiday pay and pay in lieu of untaken leave.

This case came to a head at the end of last month with the CJEU ruling that “a worker claiming holiday pay (emanating from the European Working Time Directive (WTD)) is not precluded from doing so simply because he has never sought to exercise a right to take such leave.”

While some of the defence centred on the fact that King had not actually asked for holiday pay entitlements, had turned down the opportunity to be engaged as an employee and, as a consultant, wasn’t deemed entitled to statutory leave, the Employment Tribunal ruled that King’s status had been mistaken. As such, he was a worker and entitled to statutory pay.

The case has now been referred back to the Court of Appeal for a final decision, but should this go in his favour, King stands to claim holiday pay to the sum of £27,000.

What does this ruling mean?

This case has certainly been on the radar for those involved in the supply and management of contractors since the Advocate General (AG) stated back in June that a worker is entitled to carry over paid leave until they have the opportunity to take it. The AG further stated that if the individual’s employment is terminated, the worker has the right to payment in lieu of outstanding leave.

With the CJEU now agreeing with the AG, the floodgates have certainly been opened for further claims for unpaid holiday dating back years. And with the Court further ruling that there should not be a limit on carry-over, the financial implications could be extensive.

Worker classification a priority

It’s safe to say that as authorities across Europe emphasise the importance of correctly classifying workers, we will see more cases like this emerge. And while the final decision of the CA is yet to be decided, staffing firms involved with self-employed contractors need to risk-assess any potential claims that could surface as a result of this ruling.

There’s also likely to be an impact on fee rates for self-employed resources that will hit recruitment firms. And with announcements in the latest Budget of a consultation on extending IR35 into the private sector, the risks associated with the misclassification of a worker’s status will only increase.

This issue is complex and it could be argued that there are a number of blurred lines which could catch firms out. The potential financial implications associated with classifying the self-employed and contract staff incorrectly are extensive, so partnering with an expert in contractor management solutions is certainly a sensible investment.

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