As you may have seen in the news, the Court of Appeal has given its ruling in the long running Pimlico Plumbers litigation, and it is a very significant one. The case has implications for employers that have incorrectly classed workers as self-employed but, even more significantly, it impacts on two areas which have become cornerstones of how holiday pay claims are dealt with. Essentially, the ruling increases the scope of historic back pay claims, a point we will come back to.
The case has been widely reported across the media and Personnel Today, especially, gives a good account by Rob Moss. The case centres on Gary Smith who was a worker at Pimlico who had taken unpaid leave over several years and raised a claim for unpaid holiday pay more than three months after the last date payment should have been made. His leave had been unpaid because Pimlico disputed that he was a worker. His tribunal claim was dismissed on grounds that it was out of time – outside the three month time limit for bringing these claims.
His appeal to the Employment Appeal Tribunal was also unsuccessful. The EAT rejected Smith’s argument that carry over of paid annual leave rights, which the law recognises, also applies to workers who have used their leave when that leave is unpaid.
The Court of Appeal, however, has now ruled in Smith’s favour. They say claims for holiday pay are not limited to circumstances where an employee has not taken annual leave. It also applies where leave has been taken but was unpaid. Significantly, they went further, and addressed two areas which have become cornerstones of how holiday pay claims are dealt with. First, the 2 year backstop which has applied to most unlawful deductions claims, including holiday pay claims, lodged since 1 July 2015. Secondly, the three year gap rule established in Bear Scotland whereby a series of deductions is broken by a gap of three months between deductions.
So let’s consider all these points and what the ruling means for employers. On the line from Glasgow with this assessment of it all is Stuart Neilson. First, a recap of how we got here:
Stuart Neilson: “Gary Smith brings his claim against Pimlico Plumbers because, essentially, he was someone who, although he took some leave during his six years of employment Pimlico Plumbers, he wasn't ever paid for that leave because Pimlico Plumbers argued he wasn't an employee, he wasn't a worker, he simply had no right to paid holiday. In a previous case it had been decided that he was a worker, so we had that established, so his claim then comes before the Court of Appeal in relation to his right to holiday pay, because, he said, I was a worker, should have had my holiday pay, didn't get it, but at an earlier stage his case had been thrown out because he should have brought that claim within three months of the last time that he took holiday and the employment tribunal said he didn't so it was thrown. The Employment Appeal Tribunal agreed with that and it goes to the Court of Appeal and the critical thing about the case before the Court of Appeal that Ingrid Simler, the judge there decided, was that the usual time bar arguments did not apply in his situation because he had a fundamental right to have paid holiday leave which had been denied to him and the fact that Pimlico Plumbers had said, you're not a worker, you can't have leave, meant that actually that right continued to subsist year after year after year and it built up so that when he left, it was at the point that he left employment, he was entitled to get his full payment for the holiday pay that he didn't receive.”
Joe Glavina: “What about the 2 year backstop, Stuart. How is that affected by this ruling?”
Stuart Neilson: “Well, they said that in relation to the 2 year backstop that this didn't apply in his particular case and it didn't apply in his particular case because that 2 year backstop only applies to claims under the Employment Rights Act for unlawful deductions whereas in fact, the way that they interpret his claim, was a claim under the Working Time Regulations for his four weeks of annual leave and because it was under the Working Time Regulations rather than the Employment Rights Act, two years doesn't apply so he was therefore able to go back, I think in his case 6 years, but in other cases that could be 10, 15, 20 years and that's the risk for employers that you could have that much longer period. But the critical thing is it is in a situation where the employer has essentially denied the right of the employee, or the worker, to actually have leave or to pay them for that leave at all.”
Joe Glavina: “Does this case impact on the Bear Scotland 3 month gap rule?”
Stuart Neilson: “ I think it does impact on the 3 month rule but what it doesn't do, it doesn't automatically overturn that decision. You might recall that in the Bear Scotland case, that was the case where the Employer Appeal Tribunal said that if you have a three month gap at any point in the process then that knocks out the claim before that date. A lot of people at the time thought that was convenient but was it legally, correct? There have been other cases where it's been suggested that that's maybe not technically correct and now what we've got from the Court of Appeal is the judge there saying that in her view, although it wasn't directly relevant to her case, in her view she thinks that it is questionable, she doesn't think that's right, that three month knockout rule. Now what that means is that if we get another case where that is challenged and it gets up to the Employment Appeal Tribunal I think, and I think most commentators think, they're likely to follow what the Court of Appeals said here and will knock out the three month rule. Let’s put it this way, in kind of boxing parlance, it's not a knockout blow yet, but I think it's on the ropes.”
Joe Glavina: “The Court of Appeal addressed the health and safety reasons for workers taking holiday leave. Is that significant in your view?”
Stuart Neilson: “I think it is significant. I think it's probably crystallising a direction of travel that we've all seen for the last sort of six or seven years in terms of the cases that are coming through and a much bigger recognition by the courts, and the law, that actually this is a fundamental right, the right to take holiday leave, for health and safety reasons people need to take off, it needs to be paid time off, and there is much more of a positive obligation on the employer to make sure that employees are actually taking that time off. I think it's that positive obligation which is being stressed to the courts now. So I think the important thing for employers is that they need to be much more proactive around this type of thing. I don't think they can just sit back and hope that employees will just not take action, or that they will never bring a claim. There is an actual positive obligation on the employer to actually make sure that they're giving leave, it's paid leave, and it's paid at the correct level.”
Joe Glavina: “Finally, Stuart, the headlines around this case are that it has huge implications for employers because it challenges the previous case law which many employers have relied on when handling issues to do with holiday pay. Is that right? Do you agree?”
Stuart Neilson: “Yes, and I suppose you've got to put it into context. I'm not sure it radically changes the ground at the moment in relation to cases where people have been underpaid their holiday pay. So those cases where people have, perhaps, not received the correct holiday pay for a period of time and the employers have settled those types of claims, I think they are probably okay. I think the bigger issue would be for those employers who haven't yet grasped that nettle. I think where there are situations where employers know there's been an underpayment going on, perhaps allowances, overtime, things that that haven't been properly included or correctly calculated, and they've just ignored it because nobody has brought a claim. I think danger for them, if they continue to ignore that 3 months rule that’s on the ropes, we think it's going to get knocked out at some stage and that's going to open up a much broader liability for employers. So I think the answer is you need to be looking at this now, taking some action and making sure you're getting this resolved, because I think if you delay then it’s just going to get worse.”
Our Employment Team has put together a briefing note dealing with the implications of this ruling. It is called ‘Holiday pay back in the Court of Appeal’. We have put a link to it in the transcript of this programme.
- Link to Pinsent Masons’ briefing note on Smith v Pimlico Plumbers
- Link to Court of Appeal judgment: Smith v Pimlico Plumbers