Holiday pay: carrying over leave which was taken but unpaid
The Court of Appeal has held that a worker can carry over leave that has been taken, but not paid in Smith v Pimlico Plumbers Ltd.
Mr Smith was a plumbing and heating engineer who worked for Pimlico Plumbers (PP) from 2005 to 2011. During that period PP maintained that Mr Smith was a self-employed independent contractor without entitlement to paid annual leave. From time to time he took periods of unpaid leave and, following his suspension in May 2011 which he treated as a fundamental breach entitling him to terminate his contract, he brought proceedings in the employment tribunal, including a claim for holiday pay. When the Supreme Court determined that he was a worker, his holiday pay claim returned to the employment tribunal but was dismissed on the basis that it was brought outside the statutory three-month time limit and so was out of time. The Employment Appeal Tribunal (EAT) dismissed his appeal against the tribunal's decision.
Both the tribunal and the EAT held that Mr Smith was unable to rely on the case of King v Sash Windows as this concerned a worker who, as a result of his employer's refusal to pay holiday pay, had not taken leave (in King it was held that a worker did not have to take leave first in order to establish the right to be paid for it and so they could carry over the right to be paid in lieu on termination). However, the Court of Appeal disagreed.
The Court held that a worker can only lose the right to take leave at the end of the leave year (in a case where the right is disputed and the employer refuses to remunerate it) when the employer can show that it gave the worker the opportunity to take paid annual leave, encouraged them to do so, and informed them that the right would be lost at the end of the leave year. If the employer can not show that this had been done then the right to holiday does not lapse, but carries over and accumulates until the contract terminates. In this case Mr Smith's claim was in time because he had been denied the opportunity to exercise the right to paid annual leave throughout this employment, and so the right did not lapse, but carried over until his contract ended at which point he was entitled to be paid for the unpaid leave.
Take note: Following the decision in Smith it is clear that where a worker has taken leave which is unpaid they still have the right to be paid for it. The fact that the leave has been taken does not detract from the fact that such leave must be paid. If an employer is unable to show that they have given the worker the opportunity to take paid annual leave and informed them that the right will be lost at the end of the leave year, then the right to payment for the leave will accrue until the contract comes to an end.
It's worth noting that under the Deduction from Wages (Limitation) Regulations 2014, which came into force on 8 January 2015 and applies to claims presented on or after 1 July 2015, there's a two-year backstop on most deductions from wages claims, including claims for holiday pay.