Mr M Heawood v Cleaning Equipment Services Ltd: 1402122/2018
EMPLOYMENT TRIBUNALS
Case No 1402122/2018
Between
Mr M HeawoodClaimantCleaning Equipment Services LtdRespondent
Before
Employment Judge CraftHimself for claimantDate 28 May 2019
JUDGMENT
The Respondent shall pay the Claimant the sum of £779.67 for accrued holiday pay due to him.
REASONS
[1]The Claimant pursued claims for unfair dismissal, wrongful dismissal and holiday pay. The Respondent submitted that the Tribunal had no jurisdiction to consider the claims because the Claimant had not been an employee of the Respondent. It also denied the claims made against it. At a Preliminary Hearing held on 19 January 2019 the Tribunal determined that it had no jurisdiction to hear the claims of unfair and wrongful dismissal and these claims were dismissed. It also found that the Claimant had been a worker with the Respondent and was entitled to maintain his claim for holiday pay for which directions were given.[2]There was an Agreed Bundle of Documents: Exhibit R1. The Tribunal received oral evidence from the Claimant and Mr Lloyd, a director of the Respondent who gave evidence in chief by written statements: Exhibit C1 and R2 respectively.[3]The parties agreed that the Deduction from Wages, (Limitation) Regulations 2014, which came into force on 8 January 2015 applied to this claim. It was noted that these Regulations added an amendment to the Employment Rights Act 1996 as follows: 23(4A) "An employment tribunal is not (despite subjections (3) and (4)) to consider so much of the complaint brought under this section as relates to a deduction where the date of payment of the wages from which the deduction was made was before the period of two years ending with the date of presentation of the complaint". The Claimant had presented his complaint on 13 June 2018. The effect of the amendment is that the Claimant's claim for holiday pay can only be taken back to 14 June 2016.
Findings of Fact
[4]There were no substantial disputes of fact between the parties and the Tribunal, having considered all the evidence, documents and oral and written representations it received during the hearing, made the following findings of fact. The Respondent hires out, and supplies, cleaning machinery. The Claimant worked for the Respondent as a Service Engineer which involved him travelling to and from customer sites repairing industrial cleaning machinery. The Claimant had commenced employment with the Respondent on 1 October 2013. This employment ended on 9 May 2014. During that employment the Claimant had agreed to work at an hourly rate which included a rolled-up holiday payment and was paid monthly. The Claimant resumed working for the Respondent on a self-employed basis at the beginning of 2015. He was paid weekly for his work rather than monthly as before. There were then medical concerns which forced him to stop working in the middle of that year because of the extensive travelling and driving which the job of a service engineer involves.[5]The Claimant resumed working for the Respondent at the end of October 2015 after which, except for one week in August and another week in December 2016, he worked for the Respondent during every week until 28 February 2018. This was when the contractual arrangements between the Claimant and Respondent ended following a disagreement between the Claimant and Mr Lloyd. The reason for this termination of the arrangements is disputed between the parties but the Tribunal does not have to make any findings of fact as to this disputed area because such findings are not relevant to the remaining issue before it.[6]When he resumed working for the Respondent it was agreed that he would enter into full time employment with the Respondent at the start of the Respondent's next financial year (1 January) and that until then he would be paid a slightly increased hourly rate in consideration of him not taking any holiday during the remainder of the current financial year.[7]The Claimant considered he was self-employed. He did not know that he had worker status which entitled him to be paid holiday pay. Mr Lloyd's position before the Tribunal was that when the Claimant returned to work on 26 October 2015 he continued on the same arrangements as had applied before he had to give up work earlier in the year. He also confirmed that in 2016 the Respondent's employed service engineers were paid £10 per hour and had all received written terms and conditions of employment. The Claimant was in a unique position. He was the only service engineer who was not directly employed by the Respondent. The Respondent provided no contractual documentation to the Claimant. He submitted weekly invoices initially charging at the rate of £12 per hour with that rate increased to £13 and then £13.50 from 1 January 2018.[8]Mr Lloyd submitted that the Claimant had been paid an hourly rate which included an allowance for holiday pay, that is, there was a rolled up holiday pay arrangement for him. He relies on an email which the Claimant had sent to him on 11 May 2016 to support his case. This email dealt with a number of issues but stated, inter alia, as follows: "On a completely separate issue I am concerned that there is a perception that using my services is more expensive, please explain to whichever parties share this misconception that my contract equivalent rate is exactly the same as £10 per hour PAYE, the cost to CES is no different when you add the cost of employer's NI contributions and 28 days paid holiday to that PAYE rate. I would say that represents excellent value for a fully tooled, skilled and experienced field service engineer and the increased likelihood of successful outcomes for CES and their customers". Mr Lloyd did not identify what element of the hourly pay was allocated to holiday pay or how this was calculated.[9]The Claimant explained that his colleagues, who were all employees of the Respondent, had become aware that he was being paid a higher hourly rate than they were (although he was not aware of their rates of pay). He was concerned that there had been a breach of confidentiality by the Respondent in respect of his contractual arrangements. His understanding was that he was receiving a higher hourly rate of pay than his colleagues because he was not guaranteed any work, or minimum level of weekly income, by the Respondent and for this reason he was still pressing the Respondent to offer him an employment contract to bring the current arrangements with him to an end.[10]The comprehensive schedule of the hours (prepared by the parties) recorded the hours the Claimant had worked for the Respondent during the relevant period. It confirms that he had been offered work by the Respondent, and had accepted those offers of work, in all but two weeks since October 2015. There had been no discussion between the Claimant and Mr Lloyd about his potential entitlement to holiday during this period. The Claimant had not requested permission from Mr Lloyd to take holiday. Mr Lloyd had not refused any such request from the Claimant or given any indication as to whether this would or would not be agreed by him. The subject had not arisen because neither the Claimant nor Mr Lloyd considered that he was entitled to take holiday or receive holiday pay during any holiday absence. The Claimant did not work for anyone else during this period. He worked varying hours for the Respondent. He described weeks when he was offered few hours of work as fallow time providing him with a break from work. Submissions[11]Mr Lloyd submitted that he had been running his business for over 21 years and had never previously faced a complaint in an Employment Tribunal. His position was that the Claimant was the beneficiary of a rolled up holiday pay arrangement. The Claimant made no submissions. He was content for the Tribunal to adjudicate on the facts before it which were not substantially in dispute. Extent of claim[12]The Tribunal reserved its judgment. During its initial deliberations it had asked the parties to discuss whether or not the extent of the financial claim, limited as it was to the two year period confirmed above, could be agreed between them taking into account the extensive consideration the parties had given to this before attending the Tribunal. When the Tribunal confirmed it was reserving its decision the parties confirmed that the Claimant was claiming a sum of £4,794 for accrued holiday pay in the relevant period from 14 June 2016. The parties wrote to the Tribunal about this calculation following the hearing. As the Reasons below make clear the Tribunal did not have to deal with the points raised in their correspondence.
The law
[13]This case, and its undisputed facts, takes the parties, and the Tribunal, into an area in which the interaction of European and UK legislation and case law has given rise to considerable complexity and difficulty over many years. The Tribunal will, firstly, summarise what it considers to be the relevant law before identifying the issues in this case and its findings in respect of them.[14]The main statutory rules on holiday rights are contained in the Working Time Regulations 1998 (WTR). These Regulations implement the Working Time Directive (2003/88/EC) (WTD). Article 7 of the WTD provides that each member state must ensure that every worker is entitled to paid annual leave of at least four weeks, with the conditions for entitlement to such leave being set by national legislation or practice. The WTR came into force on 1 October 1998. These Regulations introduced a statutory entitlement to a minimum amount of paid annual leave. This was initially three weeks a year, but was increased to four from November 1999, 4.8 weeks from October 2007 and 5.6 weeks from April 2009.[15]A worker is entitled to 5.6 weeks' annual leave in each leave year. This is equivalent to 28 days for those who work five days a week. This is made up of the right under the WTD to a minimum of four weeks' annual leave (20 days for full-time employees) each year which is transposed into national law by Regulation 13(1) of the WTR. This is often referred to as WTD leave. The second entitlement is the domestic UK right to an additional 1.6 weeks' annual leave (8 days for full-time employees) each year. This represents the number of public holidays in the UK in a year. However, there is no need to use these days on public holidays (Regulation 13A WTR). This is usually referred to as additional leave.[16]A worker cannot be entitled to more than 28 days' statutory leave in a single leave year. No minimum period of continuous service is required to qualify for statutory annual leave. Under the WTR a leave year commences on the date set out in a relevant agreement which will normally be the contract of employment or a document incorporated into the contract of employment. If the leave year is not specified in the relevant agreement the WTR provides a default position which in the case of the Claimant would be that the leave year begins on the date their employment commenced and each anniversary of that date. It is well-known that an employment contract need not be in writing but a relevant agreement for the purposes of the WTR must be in writing if it is to validly set the worker's leave year. The Tribunal records its finding that the Claimant was provided with no written contract, or other document, specifying his leave year. Neither party thought it was necessary to do so. The Claimant's last period of work commenced in week 44 of 2015. As already noted this was 26 October 2015. His holiday year ran from that date.[17]Under the WTR, WTD leave may only be taken in the leave year in respect of which it is due. In other words, it must be taken in the leave year to which it relates, or else it is lost. However, additional leave may be carried forward into the next leave year in accordance with a relevant agreement. There was no such agreement in this case.[18]There are some circumstances in which case law has established that workers should be permitted to carry over unused statutory holiday to the next year and sometimes beyond that. This applies where a worker has been unable to take their statutory holiday in the year in which it accrued. Two such circumstances are maternity leave and sickness leave. In the former case the employer must allow the worker to carry it over to the following year and the same applies in the latter case except that employers are allowed to limit carry over in cases of long-term sickness leave so that any holiday not used up within eighteen months of the end of the leave year in which it accrued is lost.[19]There are two other such circumstances which could be relevant to the Claimant's position. The first is where an employer has told the worker that leave will be unpaid. This is liable to deter workers from exercising their right to leave, and the right to any untaken WTD leave will carry over, potentially until termination. If that has occurred such a situation may well arise where the employer believes (wrongly) that the worker is an independent contractor and so has no right to paid holiday. In such circumstances the employer must bear the consequences of their mistake. The second situation is where a worker does not have an effective opportunity to take their WTD holiday entitlement. The relevant European case as to this situation is Kreuziger v Berlin (C-619/16) EU:C:2018:872. This case confirms that there is a requirement on the employer to show, in particular, that it provided sufficient information to the worker about their holiday entitlement, and the potential loss of untaken entitlement at the end of the relevant leave year. This is because the European Court of Justice (ECJ) found that the WTD and the Charter of Fundamental Rights do not permit rules whereby a worker automatically loses any accrued, untaken, WTD holiday entitlement at the end of the holiday year simply because the worker failed to seek that entitlement.[20]The ECJ concluded that the entitlement can only be lost if the employer can show that the worker had an effective opportunity to take it. This requires the employer to show that it enabled the worker, particularly through the provision of sufficient information, to take their holiday. Accordingly, in such circumstances, because the untaken entitlement is outstanding on termination, the worker is entitled to receive a payment in lieu of that entitlement. Kreuziger indicates the steps which the employer might need to take to demonstrate that they had provided sufficient information to the worker include specifically and transparently giving the worker the opportunity to take their annual leave, encouraging the worker, formally if need be, to take their annual leave and informing the worker accurately and in good time that, if they do not take their entitlement, they will lose it at the end of the holiday year, or on termination if that occurs during the holiday year.[21]However, Regulation 13(9) of the WTR provides that statutory holiday cannot now be carried over into the next leave year and the position as to a worker's entitlement to holiday pay under Regulation 16 WTR when his / her right to take holiday is extinguished has given rise to conflicting decisions in the Employment Appeal Tribunal and the Court of Appeal ("EAT").[22]In Fraser v South West London St George's Mental Health Trust [2002] IRLR 100 the EAT (Underhill P) reached the "firm conclusion" that workers are only entitled to statutory holiday pay under Regulation 16 if they take statutory holiday or give notice to their employer, under Regulation 15, that they wish to take such holiday. Mr Justice Underhill observed that the purpose behind the Regulations is to encourage employees to take the full annual leave to which they are entitled, in the interests their health and welfare. If they were not entitled to be paid while taking annual leave, there would be an incentive to forego it. This is why Regulation 16(1) provides an employee should be paid for periods of leave taken. However, the obligation to pay has no application where annual leave has not been taken. It would be contrary to the purpose of the Regulations if workers could receive statutory holiday pay without taking the time off, as this would create a financial incentive for them not to exercise their holiday rights.[23]He found that the ordinary rule of "use it or lose it" under Regulation 13(9) applied in this case meaning that the Claimant's failure in asserting her right to leave by putting in a request for it meant that the right expired at the end of each leave year. Mr Justice Underhill accepted that it might appear somewhat artificial for an employee who is not at work to give notice that part of her absence should count as holiday, but he thought that this merely reflected the artificiality of a period of long-term sickness counting as holiday at all. In any event, he found the giving of notice was more than a formality because without it the employer, who is not otherwise paying the employee, or is paying him or her only sick pay, will not know whether, or – just as importantly – when, it is obliged to make any payment under Regulation 16.[24]However, in NHS Leeds v Larner [2012] EWCA Civ 1034 the Court of Appeal distinguished Fraser on its facts. It held that a worker on long-term sick leave who would not have an opportunity to take annual leave was entitled to carry her unused leave forward into the following leave year and to receive a payment in lieu of it when her employment subsequently terminated, regardless of the fact that she had made no request either to take the leave or to carry it over before the expiry of the leave year in which her entitlement arose.[25]In the Judgment Mummery LJ observed that Article 7 does not expressly state that a worker who wants to take paid annual leave or carry it forward into a subsequent leave year must put in a request. Moreover, none of the ECJ decisions set out such a requirement. He distinguished Fraser on its facts. The crucial difference was that after a lengthy period of sick leave Mrs Fraser had been certified fit nearly a year before she was dismissed and therefore had the opportunity to take her unused leave outstanding from previous leave years but had failed to do so. However, in Larner the worker was prevented from taking paid annual leave, and benefiting from the period of rest, relaxation and leisure that the right is intended to afford, by reason of her sickness throughout the relevant year. In her circumstances, she was entitled to take her leave at another time when she was not sick and could benefit from its protective purposes – if necessary after the end of the leave year. In such circumstances, the only option under the Directive was to allow Larner to carry her unused leave forward into the next leave year and she did not have to make a prior request to do so. Furthermore, as her employment was then terminated in that year, before she could take the carried-over leave, the Tribunal had been correct to find that she was entitled to a payment in lieu on termination. Larner was entitled to invoke Article 7 directly against her NHS employer. This meant it was unnecessary for the Court of Appeal to consider the WTR. However, Mummery LJ indicated that the Regulations could be interpreted to achieve the same result.[26]The Employment Appeal Tribunal in Larner had found that a fit worker who failed to make any request for holiday during a relevant year might lose his or her leave entitlement – certainly if the contract so provided – because that worker would have had that opportunity to exercise the right to take leave. The Tribunal agrees with the frequently expressed view that this means that the "use it or lose it" principle explained in Fraser continues to apply in such a situation. This means that workers who choose to work throughout a leave year and thereby forego some, or all, of that year's statutory holiday entitlement are unlikely to be entitled to a payment in lieu of that entitlement when their employment terminates other than a payment in respect of the leave year in which the employment ends.[27]The Respondent also submits that the Claimant was receiving an hourly rate which included an allowance for holiday pay. Rolled-up holiday pay (where an existing basic rate of pay includes pay for annual leave) has also been subject to substantial argument in various cases. The difficulty with rolled-up holiday pay where an existing basic rate of pay includes pay for annual leave is that it arguably defeats the objective of the WTD (providing for paid annual leave) as it could deter workers from taking holiday. It means that if a worker takes holiday, they will receive no pay while they are on leave with their holiday pay being "rolled-up" into the pay they receive when working. The issue was finally resolved by the ECJ in Robinson-Steele v PD Retail Services and other cases [2006] IRLR 386 which found that it is contrary to Article 7 of the WTD for a payment for statutory annual leave to be made in the form of part payments staggered over the corresponding annual period of work and paid together with remuneration for work done, rather than in the form of a payment in respect of a specified period during which the worker actually takes leave. It concluded that rolled-up holiday pay arrangements cannot be lawful in any circumstances.[28]However, although stating that member states must take appropriate measures to ensure that such practices are not continued it stated that sums already paid to a worker under a rolled-up holiday pay scheme could be offset against the holiday pay due to that worker, provided that the arrangements were sufficiently transparent and comprehensible and the sums genuinely represent an addition to pay for work done. The potential confusion caused by this decision is obvious. It concludes that rolled-up holiday pay is technically unlawful but finds that sums already paid under a transparent and comprehensible rolled-up holiday arrangement could be set off against any claim for unpaid holiday pay. The WTR have also not been amended to specifically prohibit rolled-up holiday pay because the Government decided to deal with this matter by issuing non-statutory guidance.[29]In the case of Lyddon v Englefield Brickwork Limited UK EAT/0301/07 the EAT upheld a tribunal's decision that the employer was entitled to offset rolled-up holiday pay against the worker's entitlement under the WTR. In doing so the EAT indicated that guidelines set out in previous cases set out the best, but not the only way, or providing satisfactory evidence that an appropriate, and transparent, agreement had made between the parties identifying a specific sum attributable to periods of holiday and that while it was desirable for the sum attributable to holiday pay (or the formula for calculating it) to be set out in writing before a worker starts work, there was no exhaustive set of criteria which had to be satisfied before a tribunal could properly reach a conclusion on whether there was a clear and transparent contractual term. Therefore, there are real risks to employers who continue using rolled-up holiday pay arrangements. However, each case has to be considered on its own facts taking into account the judicial guidance available from previous cases.[30]A worker can bring claims for holiday pay in the Employment Tribunal under the WTR or, as the Claimant has done in this case, under s23 Employment Rights Act 1996. The latter route permits deduction from wages claims to be brought within three months of the last in a series of deductions meaning that underpayment of holiday pay going back several years might in theory be recovered in a single claim. However, as already noted ( and agreed by the parties) the ability to claim historical unpaid holiday pay using the deduction from wages route has been restricted to a substantial extent by the 2014 Regulations, as in this case in which the Tribunal can look back no further than 14 June 2016.
Conclusions
[31]The first task for the Tribunal is to consider whether the contractual arrangements between the Respondent and the Claimant included rolled-up pay within his hourly rate. The starting position is that any such arrangement is unlawful and could not provide a defence for the Respondent. The parties had no discussion as to holiday pay when the Claimant resumed working for the Respondent in 2015. The Respondent did not document its contractual arrangements with the Claimant. There was no transparent and comprehensible arrangement discussed with the Claimant, or put in place by the Respondent to show a separate identifiable sum within the Claimant's hourly rate for holiday pay. The document which Mr Lloyd relied on was prepared by the Claimant and extended over a number of different issues being raised by the Claimant at that time. In any event although Mr Lloyd had persuaded the Claimant not to take any holiday for a period of time he did not consider that the Claimant was entitled to any holiday pay and had put in place no transparent and comprehensible arrangement in respect of rolled-up holiday pay. The Respondent has no arguable case to support this defence.[32]However, what is also clear is that the Claimant did not consider that he was entitled to holiday pay. Furthermore, he made no request to take any holiday. He had been able to accept or decline offers of work made to him by the Respondent. He chose to accept the offers of work made to him by the Respondent. He chose to accept the offers of work which the Respondent made to him over an extended period, utilising fallow periods for rest as they arose. Although Mr Lloyd agreed with the Claimant that he would forgo taking any breaks for a period of time leading up to the Respondent's next financial year Mr Lloyd did not refuse any request made by the Claimant for paid holiday. The Claimant was not prevented from taking holiday by long term sickness. The outcome of any request for holiday that could have been made was untested by reason of the mutual ignorance of the parties of their potential legal rights and obligations.[33]The Tribunal finds, on the undisputed facts of this case, following the principles set out by Mr Justice Underhill in Fraser that the Claimant did not use his holiday entitlement and therefore lost it at the end of each relevant holiday year because he was content to accept offers of work throughout that holiday year.[34]Therefore, by operation of Regulation 13(9) WTR the Claimant cannot succeed in his claim for accrued holiday pay in any holiday year up to 26 October 2017. However, he is entitled to be paid for holiday that accrued to him in the holiday year in which the contractual arrangements with the Respondent came to an end.[35]In that year the Claimant accrued holiday from 26 October 2017 to 28 February 2018. His statutory entitlement for a full holiday year was 28 days. He worked for sixteen weeks in that holiday year. His accrued holiday entitlement is therefore 16 / 52, that is 4 / 13, of 28 days. This is 8.61 days or 1.61 weeks as the Claimant worked variable hours for the Respondent. The Tribunal has to calculate his average weekly wage to calculate his accrued holiday entitlement in this period. The reference period for this calculation is his last 12 weeks' work for the Respondent. This is from week 28 of 2017 to week 7 of 2018 inclusive. In this period the Tribunal calculates from the agreed Schedule that the Claimant earned £5,811.25 which provides an average weekly wage of £484.27. This has been multiplied by 1.61 to give a sum of £779.67. This is the accrued holiday pay due to the Claimant from the Respondent and judgment is entered accordingly.