Last week, the European Court of Justice ruled in favor of a salesman who claimed he was owed holiday pay for the 13 years that he was engaged as a self-employed consultant. In this case, the worker had previously rejected an offer of employment in favor of independent status, yet subsequently challenged that status after his engagement was terminated.

Conley King worked as a salesman for The Sash Window Workshop Ltd, or SWW, from 1999 until 2012, when he turned 65 years old. In 2008, SWW offered him an employment contract, which he declined. When his engagement ended in 2012, King challenged his employment status and sought compensation for periods of holiday leave taken but not paid for, and also pay in lieu of untaken leave which should have accrued throughout his employment had he been classified as a worker.

A UK tribunal ruled that King had been wrongly classified as self-employed by SWW, and that throughout his engagement, King had mistakenly believed that he was only entitled to be paid commission.

As a “worker” rather than a self-employed contractor, under the UK’s Working Time Regulations, (WTR), King was entitled to 5.6 weeks’ paid holiday for every year of his employment.

Laws at odds. The right to paid annual leave stems from the European Working Time Directive, which entitles all workers across the European Union to a minimum of four weeks’ holiday per year. The UK’s WTR stipulates that annual leave must be taken in the year in which it is accrued, and may not be replaced by a payment in lieu except where the worker’s employment is terminated. However, European law overrides national provisions, and the European Court of Justice has the authority to determine whether the directive’s rights have been implemented correctly.

Accruals and carryover. Although there was no dispute that King would have been entitled to paid holiday as a “worker” once the tribunal ruled on his status, the issue before the European Court of Justice became whether the WTR wrongly limits a worker’s right to paid holiday in the Directive, by requiring holiday to be taken in the year in which it had accrued, effectively barring King’s claim for untaken holiday during the years prior to his termination.

Previous judgments of the European Court of Justice had determined that holidays that could not be taken in the leave year in which they had accrued due to periods of illness could be carried over. However, the law was unclear as to whether the right to paid leave carries over until the worker has the opportunity to take it in a situation where either an employer had refused holiday, or leave had not been taken because the worker believed they would not be paid for it. If so, is there a time limit in which it should be taken or does it accrue indefinitely?

In last week’s ruling, the European Court of Justice held that a worker should not have to take leave in order to establish whether he has a right to be paid for it. It also held that the right to paid annual leave under the Directive cannot be subject to any preconditions, such as being required to make a request to take leave, or restrictions that prevent a worker from carrying over and, where appropriate, accumulating, until termination of the relationship, his unexercised rights. The European Court of Justice said that “if it were to be accepted … that the worker’s acquired entitlement to paid annual leave could be extinguished, that would amount to validating conduct by which an employer was unjustly enriched to the detriment of the very purpose of that Directive, which is that there should be due regard for workers’ health.”

The European Court of Justice has stated that the UK’s WTR restricts a worker’s right to the minimum four weeks’ paid annual leave. This means that UK workers can now claim for untaken and unpaid leave that they previously thought was time-barred, and as a result, employers may receive significant claims for holiday pay.

Enlightened interpretation. The case will now go back to the UK’s Court of Appeal to consider how the WTR should be interpreted in light of the European Court of Justice’s decision. The European Court of Justice focused on the worker’s right to paid annual leave under the Directive rather than the circumstances in which the worker was prevented from taking such leave. This is significant because SWW’s 2008 offer of an employment contract would have guaranteed King the right to paid holiday.

“Unlike in a situation of accumulation of entitlement to be paid annual leave by a worker who was unfit for work due to sickness, an employer that does not allow a worker to exercise his right to paid annual leave must bear the consequences,” the European Court of Justice stated., “A worker faced with circumstances liable to give rise to uncertainty during the leave period as to the remuneration owed to him, would not be able to fully benefit from that leave as a period of relaxation and leisure.”

Far-reaching ramifications. This case will have significant implications for employers who have failed to provide an opportunity for their staff to take paid holiday, because they have wrongly classified them as self-employed. In particular, this will affect those gig economy businesses whose workforce has successfully challenged their self-employed status. For example, Uber recently lost a tribunal case involving two drivers who were held to be workers rather than self-employed freelance contractors. Claims that were limited both in amount and time due to the restrictions in the WTR may now stretch to many thousands; King’s claim for 13 years’ worth of holiday pay amounted to £27,000.

Any employer that engages directly with contractors on a self-employed basis should assess their risk of exposure to back-dated claims for holiday pay, and should take legal advice on steps to avoid such claims in the future.