UK: Holiday Pay and the Atypical Worker

Last Updated: 25 March 2004
Article by Christopher Booth

Under the Working Time Regulations, workers are entitled to 4 weeks paid holiday per year. Recent case-law has made it clear that ‘worker’ is a very wide category and individuals who have traditionally been thought of as self-employed may fall within it, giving them rights to holiday pay.

One such example can be seen in the case of Canada Life v Gray . This concerned two consultants used by Canada Life to sell policies on a commission only basis. Under their commission agreement, there were no provisions for holiday pay. However when their engagements terminated, they claimed arrears of holiday pay from October 1998 when the Working Time Regulations came into force.

The Employment Tribunal upheld their claims, deciding they were ‘workers’. They satisfied the statutory definition as they were engaged under a contract ‘to perform personally any work or services’. As a result, both received substantial arrears of holiday pay -in Mr Gray's case the award was over £30,000.

On appeal the employers did not challenge the finding that the consultants were workers. Instead the focus was on two other issues:

  • Could the consultants claim holiday pay regardless of whether they actually took 4 weeks leave during the relevant years; and
  • were the claims time barred?

The EAT found for the consultants on both points, holding that although holiday pay should be paid during employment at the time holiday is taken, there is no policy objection to the entire amount being payable in lieu on termination. This curious distinction was justified because otherwise a bad employer could defeat the Regulations by refusing holidays during employment and then escape payment on termination as well. The EAT also confirmed that in a post termination claim it was irrelevant whether holiday had actually been taken. It also held that such claims could be brought under the Employment Rights Act as unlawful deduction of wages and thereby cover the whole series of non-payments of holiday pay back to 1998,provided they were brought within 3 months of the final commission payments being made.

Practical Implications

Employers use all sorts of atypical staff from time to time, describing them by various labels; self-employed, consultants, casuals, temporaries. The label is misleading: for holiday pay purposes (and many other purposes -for example, discrimination protection)what counts is the legal definition of ‘worker’; do they have contracts to work personally, as opposed to being in business on their own account? Anyone from a marketing consultant to a computer specialist may be a ‘worker’ within this definition and so entitled to holiday pay. Employers therefore need to review their practice to ensure compliance with the Regulations and make provisions for any anticipated claims for back pay. Specific legal advice in this complex area is recommended.

Stress Claims: the Discrimination Route

Personal injury claims for stress related illnesses have become much more difficult since the Court of Appeal's decision in Hatton (currently subject to an appeal to the House of Lords). The plaintiff has to prove not just that stress was foreseeable, but that specific psychiatric injury should have been foreseen. By contrast in discrimination law, once discrimination is proved, any illness that results can give rise to compensation. In Laing v Essa , Mr Essa's foreman made a single offensive racist remark which gravely upset Mr Essa. Not only were his feelings upset, he left work and suffered a severe depressive illness as a result, giving up his career. No one could have expected or foreseen that the remark would have such drastic consequences.

On these facts it is clear Mr Essa would have no personal injury claim. Even if his employer had breached a duty of care, the resulting injury was not foreseeable. However, according to the Laing decision, in discrimination law the employer can be liable for all of the consequences directly caused by the initial racist injury. Provided the applicant can prove the causal connection (which is likely to require clear evidence in the case of psychiatric injury)he can recover compensation for any subsequent losses, subject only to his duty to mitigate his loss.

Practical Implications

An employee experiencing stress at work will find it much easier to claim compensation if they can show that, at least in part, the stress is attributable to a discriminatory element. Effective Equal Opportunity Policies should help to prevent such claims arising in the first place, and to provide a defence to such claims: namely that the employer, by implementing the policy, providing training and so on, took reasonably practicable steps to prevent the discriminatory acts.

DO YOU NEED TO KNOW…?

Injury to Feelings and Unfair Dismissal
Ever since unfair dismissal was introduced, it has been accepted that only financial losses were recoverable. Then, almost as an aside, Lord Hoffman in the House of Lords in Johnson v Unisys ,declared that applicants could claim for injury to feelings. Much confusion followed, until the Employment Appeal Tribunal’s decision in Dunnachie last summer, roundly restored the orthodox position. Now the Court of Appeal has overturned the EAT: where an applicant has suffered ‘a real injury to his self respect’ the Tribunal may compensate him for injury to feelings - and, in the particular case, the tribunal was correct to award £10,000, for 'a bad case of workplace bullying, compounded by an equally serious refusal by management to deal with it’. The case is likely to go to the House of Lords for a final decision. If upheld, stress related compensation will be available not just in discrimination claims (see above),but for any unfair dismissal including constructive dismissals.

Overseas Employees and Unfair Dismissal
Until 1998,only employees who ordinarily worked in Great Britain’ could claim unfair dismissal. Then Parliament repealed that provision, without putting any territorial limit in its place. Last year, an extraordinary decision of the EAT decided that any employee, anywhere in the world could claim unfair dismissal in Britain provided only that their employer ‘carried on business’ here. That decision has now been overruled by the Court of Appeal in Serco Limited v Lawson .They have propounded a deceptively simple new jurisdiction test: ‘was the employment in Great Britain’? This is preferred to either the ‘substantial connection ’test, or the ‘base’ test. In many cases it may be clear where the employment was, but much litigation will follow in borderline cases to find out how the new test applies in practice.

Statutory Maternity Pay, Adoption Pay and Paternity Pay
The rates for these go up on 6 April (in practice from the week beginning 4 April),from £100 to £102.80.

Cases referred to in this update:

Canada Life v Gray and Farrar,EAT/657/03;Laing Limited v Essa [2004 ]EWCA Civ.02;Johnson v Unisys [2001 ]IRLR 269;Dunnachie v Hull City Council [2004 ]EWCA Civ 84 (CA);Serco Limited v Lawson [2004 ]EWCA Civ 12

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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