Right to payment for annual leave from one year to the next

News  |   4 February 2022

Written by
Elliott Flockhart, Trainee Solicitor

The Court of Appeal has held in Smith v Pimlico Plumbers Ltd, that a worker is entitled to carry over a right to payment for annual leave from one year to the next, if the worker is permitted to take annual leave, but has not been paid for it.

The Employment Tribunal considered whether the Working Time Regulations should be interpreted to enable Smith to accrue a right to payment for unpaid leave, which would become payable on termination. However, the Tribunal determined that Smith’s claim was distinguishable from that of King v Sash Window Workshop and anor (Brief 1085), in which the worker was entitled to carry over annual leave which was untaken following the employer’s refusal to remunerate it. The Employment Appeal Tribunal (EAT) agreed, stating that a worker who has taken unpaid annual leave cannot be said to be in a position where they have not exercised their right to paid annual leave. The EAT also upheld the Tribunal’s decision that Smith’s claim, concerning his most recent period of holiday, was out of time.

The Court of Appeal subsequently allowed Smith’s appeal. The Court of Appeal confirmed that a worker will only lose their right to paid annual leave at the end of each leave year if they have had the opportunity to exercise the right. Furthermore, the right will only be lost when the employer can satisfy the burden of proving that it encouraged and gave the worker the opportunity to take paid annual leave, and notified the worker that the right would be lost at the end of the leave year. In turn, the right carries over to the next leave year if the employer is unable to meet this burden, at which point the worker is entitled to a payment in respect of the untaken leave. Furthermore, the Court of Appeal held that it was wrong to hold that Smith’s claim was made outside the three-month time limit.

This ruling may have significant implications for employers that falsely classify workers as self-employed contractors, as the financial ramifications of missed holiday pay can be substantial.

Advice

If you need assistance or advice on the contents of this article, please contact the Employment Team at Thackray Williams LLP 020 8290 0440.

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