Gary Smith has already achieved legal fame through succeeding in the Supreme Court in Pimlico Plumbers v Smith  ICR 1511. That case, holding him to be a “worker” for the purpose of the Working Time Regulations (WTR), established a new guiding principle for how courts should approach substitution clauses. After some bumps along the way (see e.g. Deliveroo), it looks as though the courts are now drawing on Lord Wilson’s judgment in order to restrict the capacity of substitution clauses to circumvent employment rights, illustrated by the recent Court of Appeal decision in Stuart Delivery v Augustine  IRLR 56. The judgment of the Supreme Court in Uber can only accelerate that trend.
Gary Smith’s palmares now include another huge victory, the consequences of which could prove to be even more pivotal than his first success. During his six-year engagement with Pimlico Plumbers he was never given any right to paid annual holidays. Today, reversing the EAT and the employment tribunal, the Court of Appeal decided he could recover compensation for all the unpaid leave he took throughout his employment. The judgment (here) is of importance to all workers denied the right to any paid annual leave, usually on the basis that they are not ‘workers’, and to all claims for unlawful deductions from wages, not only those brought in relation to under-paid holiday pay under WTR.
It is the means of reaching this result that matters. In the lead judgment, Simler LJ (with whom King LJ and Elisabeth Laing LJ agreed) held that the principles of Court of Justice’s judgment in King v Sash Window  ICR 693, allowing the indefinite carry over and accumulation of the untaken part of the four weeks’ of ‘Euro-leave’ due to those denied worker status in respect of their leave each year, were equally applicable to any taken but unpaid ‘Euro’ leave. As a consequence, whenever Gary Smith took leave but wasn’t paid for it, up to four weeks of that unpaid leave in respect of each leave year carried forward into the subsequent leave years and accumulated until termination of his employment. When his employment ended, a payment was due to him for all that carried over, unpaid leave, based on his normal remuneration while working. The exact amount will be determined when the case returns to the tribunal on remedy.
The implications of the judgment for ‘gig’ workers – to use the hackneyed phrase – is huge. Already, such workers could rely on King to carry over the untaken portion of four weeks’ leave each year and obtain full compensation for it on termination; now, according to the Court of Appeal, they can carry over taken leave as well. Moreover, and in contrast to the position of workers off sick, there is no temporal restriction on the period of carry over. It means, in essence, that individuals who were denied worker status can recover, without limit, compensation for all their four weeks’ ‘Euro’ leave – taken or untaken – every year for the duration of their employment. Liability for all that leave will crystallise on termination. Tribunals will no longer have to wrestle with the nice legal and factual issue of how much ‘leave’ a worker, who had no obligation to work and no entitlement to holiday, took or didn’t take in past years.
As a result, the financial costs to employers of wrongly denying worker status are now potentially very high indeed. It is no defence that the employer honestly believed the individual was not legally a worker: see King at §61. The effect of the Court of Appeal’s judgment is also to sweep aside the two-year limit in s.23(4A) of the Employment Rights Act on the period of past recovery for unlawful deduction from wages in circumstances where King applies. So long as a claim is brought within three months of termination, an individual denied any rights to paid annual leave can claim payment for all the untaken and taken Euro-leave in the past, without any back-stop. A worker denied worker status for, say, twelve years and who took (or didn’t take) four weeks’ unpaid leave each year is now entitled to a payment of 48 weeks’ normal remuneration on termination. There is a good argument, based on Marshall No.2  QB 126, that the claim should also include interest.
Will Brexit come to the rescue of unregenerate employers? It is doubtful it will. Mr Smith’s claim arose before the legislation giving effect to Brexit, the European Union (Withdrawal) Act 2018 (EUWA 2018), as now amended by the 2020 Act. The Court of Appeal refers to the ruling of the Court of Justice in Shimizu, holding that the right to paid annual leave in the Directive is an ‘essential principle of EU social law’, reflected in the Charter of Fundamental Rights, which can be relied upon horizontally in disputes with private employers. Once the Court of Appeal had decided on the proper interpretation of King, therefore, Shimizu provided the simple answer in Mr Smith’s case why his employer was liable to compensate him.
Now it is true that s.5(4) of the EUWA 2018 says that the Charter is no longer part of domestic law after ‘IP completion day’ (31 December 2020), and Schedule 1 §3 of EUWA 2018 precludes direct actions based on ‘general principles’ of EU law after that date. But these exclusions do not apply to any proceedings commenced before 31 December 2020: see Schedule 8 §39(3) to the EUWA 2018. Second, and more importantly for the longer term, s.5 preserves the ‘principle of supremacy’ of EU law which, as the Explanatory Notes make clear, includes the Marleasing duty to interpret national law so far as is possible to achieve the result required by the Directive. In light of the radical approach taken to this duty in cases such as NHS Leeds v Larner, it seems very likely that WTR can be interpreted to achieve the result which the Court of Appeal held is mandated by King. The upshot is that an application of the Marleasing duty should ensure that the Court of Appeal’s judgment continues to have horizontal effect after Brexit just as it did before.
A second aspect of the Court of Appeal’s reasoning is also very important, even if this part of Simler LJ’s judgment is strictly obiter. It concerns the domestic remedy in Part II of the Employment Rights Act 1996, on unlawful deductions from wages. Such a claim can embrace unpaid or under-paid holiday pay due under WTR: see HMRC v Stringer  ICR 985. It permits a wages claim to be brought within three months in the last of a ‘series’ of deductions (cf. regulation 30 WTR). It applies not only to holiday pay claims where a worker is paid nothing in respect of annual leave but also where she is paid less than her ‘normal remuneration’, of the sort that succeeded in British Airways v Williams and British Gas v Lock.
In Bear Scotland v Fulton  ICR 221 Langstaff J held that a ‘series’ of deductions for the purpose of s.23 of ERA was broken by a gap of three months or more between under-payments. That aspect of his judgment has long been questioned, and its unhappy effect is often to require claimants to lodge claims every three months – and not just in WTR claims. In Chief Constable v Agnew  IRLR 792 the Northern Ireland Court of Appeal, construing the identical legislation in Northern Ireland, held a three-month gap did not break a series of under-payments of wages. Agnew was due to be heard by the Supreme Court last year but was then stayed pending mediation.
In the meantime, Gary Smith argued in the Court of Appeal that Bear Scotland was wrong: it was contrary to the wording of s.23; it ignored the purpose of Part II of ERA and its statutory antecedents going back to the ‘truck’ Acts, which always was and still is to protect often vulnerable workers; it was inconsistent with the case-law in relation to a ‘series’ in the analogue provisions on whistle-blowing (see s.43(8) of ERA); it led to arbitrary and unfair results; and it offended against the common law principle of legality which underpinned R(UNISON) v Lord Chancellor  AC 869, because in many cases it would have the effect of making it futile to bring repeat claims for what are typically small sums of money.
Having rejected the argument for Mr Smith that his pleaded grounds included a claim based on regulation 14 WTR, with the consequence that his domestic claim for unlawful deductions failed because there was no claim in time on which it could bite, in Smith Simler LJ nonetheless went on to consider whether Bear Scotland was correct on the meaning of ‘series’ in s.23 ERA. In powerful obiter comments, she said that her ‘strong provisional view’ was that Agnew was right and Bear Scotland was wrong, essentially for the reasons set out above. The upshot is that for the moment Bear Scotland remains binding on tribunals but – at the risk of echoing a joke which wasn’t very funny at the time and has aged badly – if it is not yet dead it has a ‘do not resuscitate’ notice pinned to the bed.
The golden thread running through recent cases of the Court of Justice on annual leave is that fundamental social rights depend on effective enforcement, exemplified by the judgments in Shimizu on the horizontal effect of Article 31, Kreuziger on the duties placed on employers and King on the remedies required by Article 47 of the Charter (for discussion, see Bogg and Ford, ‘Article 31 – Fair and Just Working Conditions’ in The EU Charter of Fundamental Rights (Hart: 2021): signed copies available on request). Ever since UNISON, there has been closer focus on this question in UK employment law. Viewed in its wider context, the judgment of the Court of Appeal in Smith can be seen as reflecting and strengthening the emergence of effective remedies as a leitmotif of domestic law.
Michael Ford QC, Caspar Glynn QC and David Stephenson acted for Gary Smith on the appeal, instructed by Jacqueline McGuigan of TMP Solicitors.
William Meade (Senior Clerk)