Pimlico Plumbers loses landmark UK holiday pay case

The Court of Appeal overturned an Employment Appeal Tribunal (EAT) ruling from last year that had rejected Gary Smith’s argument that the legal precedent set in King v Sash Window Workshop applied in his case. In that trial, the European Court decided that a worker should be allowed to carry over paid annual leave rights that have not been used because the employer had refused to provide paid annual leave. The EAT said the precedent did not apply because Smith had used his leave, although it had been unpaid.

But handing down her decision, Lady Justice Simler disagreed, stating: “If a worker takes unpaid leave when the employer disputes the right and refuses to pay for the leave, the worker is not exercising the right. Although domestic legislation can provide for the loss of the right at the end of each leave year, to lose it, the worker must actually have had the opportunity to exercise the right conferred by the Working Time Directive.” The decision applies to the 4 weeks’ annual leave which is derived from the Working Time Directive.

In cases where the right to take paid leave is disputed, Lady Justice Simler said a worker only loses the right to take the leave at the end of the leave year when their employer can prove that they transparently gave the worker the opportunity to take paid holiday, encouraged them to do so, and informed the worker that the right would be lost at the end of the leave year.

Sue Gilchrist, employment law expert at Pinsent Masons, said: “The Court of Appeal’s decision will have a major impact on areas that have become cornerstones of how holiday pay claims are dealt with. In a case such as Smith’s where the very right to take paid leave was disputed, the court found that the two-year backstop, which has applied to most unlawful deductions claims lodged since 1 July 2015, does not apply.”

She added: “This means his leave actually carried over throughout his employment and crystallised on termination of his contract. The decision is, however, unlikely to undermine the two-year backstop for other types of cases, such as claims of underpaid - as opposed to unpaid - holiday.”

The EAT had also upheld the 2019 ruling of a Croydon employment tribunal (ET) which stated that a gap of more than three months between deductions limited how far back his claims could go. But in non-binding comments at the Court of Appeal, Lady Justice Simler said that the case of Bear Scotland v Fulton, which set the precedent for this ‘three month gap’ rule, was wrongly decided..

Gilchrist said: “The ‘three-month gap rule’ established in Bear Scotland Limited v Fulton is holed below the water-line by the decision, and while it remains binding for now, it is only a matter of time before a case comes along which will see it overturned.”

The landmark ruling is the latest in a series of long-running legal battles between Smith and Pimlico Plumbers, which had previously argued that the heating engineer had been self-employed and therefore not entitled to paid leave. Smith, whose contract described him as an ‘independent contractor’, also claimed he had been unfairly dismissed by the company after suffering a heart attack in January 2011.

A 2012 ET rejected Pimlico Plumbers’ claim that it had been a “client” or “customer” of Smith after discovering that he had been contractually obliged to do a minimum number of hours work for the company each week. The ET’s decision was upheld by a 2014 EAT hearing and then by the Court of Appeal in 2017, which ruled that Smith had been a worker and not self-employed.

Anthony Convery, employment law expert at Pinsent Masons, said: “This a very significant case which underlines the importance of employers correctly classifying worker status, due to the potential exposure if employers get it wrong. It is now clear that on termination workers whose holidays have been unpaid will be able to claim back for up to 4 weeks of unpaid holidays per year throughout their engagement.”