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22 March 2021 | Comment | Article by Eleanor Bamber

Is there a right to carry over payment for annual leave where the leave taken was unpaid?

Is there a right to carry overpayment for annual leave where the leave taken was unpaid? “No” said the Employment Appeal Tribunal in the case of Smith v Pimlico Plumbers Ltd.

In this case, Mr Smith (who had been found to be a “worker” by the courts) had worked for Pimlico between 2005 and 2011 and routinely taken annual leave around Christmas, summer and bank holidays. These were taken unpaid.

Mr Smith brought a claim to the Employment Tribunal in August 2011 for unpaid holiday pay that had accrued throughout his almost 6-year engagement by Pimlico.

The Tribunal dismissed his claim on the basis that it was out of time.

Whether Mr Smith had unlawfully been refused holiday pay or suffered unauthorised deductions from wages, those claims had to be brought within three months of the most recent refusal or deduction pursuant to the legislation. The latest occasion that Mr Smith had not been paid holiday was February 2011.

The Tribunal considered whether the principles laid down by the ECJ in King v Sash Window meant that the Working Time Regulations should be interpreted to enable a worker to carry over a right to claim payment for unpaid leave from year to year and to be paid this on termination. The Tribunal concluded however that there was a notable difference between the two cases: King was concerned with a worker who refuses to take annual leave because the employer is not going to pay them for it. In Mr Smith’s case, he had exercised his right to take the annual leave, albeit that it was unpaid.

Mr Smith appealed to the Employment Appeal Tribunal which dismissed his appeal.

The EAT undertook a detailed analysis of the ECJ’s decision in King and upheld the Tribunal’s conclusion that it did not give Mr Smith the right to carry overpayment for annual leave from year to year. It concluded that the ECJ’s decisions as to carry-over of the right to payment, and to be paid this on termination, can only apply in respect of leave that a worker has declined to take.

The EAT also considered Mr Smith’s appeal that if his claims in relation to the February 2011 deduction were in time, that claim could encompass earlier periods of a holiday as a ‘series of deductions. The Tribunal had relied on the EAT’s decision in Bear Scotland Ltd v Fulton (No.1)  that a gap of three months or more between deductions prevents the deductions forming part of a ‘series’.

Mr Smith had sought to argue that the Northern Ireland Court of Appeal case of Chief Constable of Northern Ireland v Agnew should be followed – this court had concluded that the ‘three-month gap’ rule set down in Bear Scotland led to arbitrary and unfair results and therefore departed from it.

This EAT concluded that it would not have been persuaded to follow the Agnew case but would instead have followed Bear Scotland.

Comment

This case brings a certain amount of clarity to the area of holiday pay, particularly in relation to the uncertainty that was introduced by the case of Agnew regarding when the “three-month gap” will break a series of deductions. Whilst the EAT was not persuaded to follow Agnew in this case (and noting that it was not bound to follow that decision), it was a largely academic point given that the claim was out of time in any event.

It is worth bearing in mind that Agnew is under appeal to the Supreme Court and whatever decision that court arrives at will be binding on the whole of the UK. The indication from the EAT in Smith is that Agnew may well be overturned by the Supreme Court so we will await the outcome in due course.

Link to Smith v Pimlico 

For further advice on any of the issues raised above please contact our Employment and HR Services team. 

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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