Court: Court of Appeal (Civil Division)
Judgment Date: 1 February 2022
Where Reported: [2022] EWCA Civ 70 [2022] 4 All E.R. 563
Legal Issue in Smith v Pimlico Plumbers Ltd
The legal issue in Smith v Pimlico Plumbers Ltd involved the interpretation and enforcement of rights to paid annual leave under the Working Time Regulations 1998 and the Working Time Directive 2003/88/EC.
Specifically, the case examined whether a worker who was denied paid annual leave could carry over and accumulate this leave until the termination of employment and if such a worker was entitled to a payment in lieu for this leave upon termination.
Additionally, the case addressed whether claims for unpaid leave taken during employment were subject to the standard three-month time limit for bringing claims under the Employment Rights Act 1996​​​​.
Material Facts in Smith v Pimlico Plumbers Ltd
The claimant, a plumbing and heating engineer, worked for Pimlico Plumbers from 2005 to 2011 under the assumption that he was a self-employed contractor, thus not entitled to paid annual leave.
Upon termination of his contract in 2011, he claimed payment for annual leave under the Working Time Regulations, which he argued he was entitled to while working for Pimlico Plumbers.
He also claimed for unlawful deductions from wages under the Employment Rights Act 1996.
An employment judge determined the claimant was a ‘worker’ for the purposes of the 1998 Regulations and the 1996 Act, and therefore entitled to 5.6 weeks of paid annual leave.
However, the claimant’s contention that he could carry over the right to claim payment for such unpaid leave year-to-year was rejected. His claims were thus deemed presented outside the statutory three-month time limits.
The Employment Appeal Tribunal upheld this decision, stating that a worker who had taken unpaid annual leave was not in a position to have it replaced by an allowance in lieu upon termination​​.
Judgment in Smith v Pimlico Plumbers Ltd
The Court of Appeal allowed the claimant’s appeal. It held that the right to paid annual leave is a crucial health and safety right under Directive 2003/88 and cannot be contingent upon the worker requesting annual leave and being refused or taking unpaid leave.
The court clarified that the right to annual leave and payment for it are two facets of a single composite right.
If a worker takes unpaid annual leave due to the employer’s refusal to pay, it should be considered that the worker was prevented from exercising their right to paid leave.
The Directive was interpreted as prohibiting national practices that prevent the accumulation and carry-over of unused paid annual leave rights due to the employer’s refusal to remunerate.
Therefore, under article 7(2) of the Directive, a worker could claim an allowance in lieu of unpaid leave taken, if a claim was made within three months of employment termination​​.
The Reason for the Decision in Smith v Pimlico Plumbers Ltd
The Court of Appeal’s decision focused on the interpretation of EU law, specifically the Working Time Directive, in the context of UK employment law.
The court underscored the importance of paid annual leave as a fundamental right related to health and safety, protected under EU law.
This right, the court argued, should not be subject to preconditions like the worker having to explicitly request paid leave.
The court examined the notion that the right to annual leave and the right to payment for it form a single composite right. It emphasised that taking unpaid leave does not equate to exercising the right to paid annual leave.
Therefore, workers who take unpaid leave because of the employer’s refusal to pay should be seen as being prevented from exercising their right to paid leave.
This interpretation in Smith v Pimlico Plumbers Ltd aligns with the intent of the Directive to ensure workers have rest and relaxation, which unpaid leave does not adequately provide.
The court also addressed the issue of carrying over unpaid leave. It ruled that the Directive prevents national laws or practices from obstructing the accumulation and carry-over of unpaid leave rights, especially when the employer refuses to remunerate leave.
This interpretation ensures that workers’ rights to paid leave are not diminished by employers’ refusal to pay, and the workers retain the right to claim compensation for this leave upon termination of their employment.
Moreover, the court considered the compatibility of the requirement to bring claims within three months of each unpaid leave occurrence with the principle of effectiveness under EU law.
It was found that this requirement could potentially conflict with the effectiveness of the right to paid annual leave as stipulated by the Directive.
The court further found that the employment and appeal tribunals had erred in their interpretation of the Working Time Regulations and the Directive, particularly regarding the accumulation of unpaid leave rights and the appropriate time frame for bringing claims.
Conclusion
The Smith v Pimlico Plumbers Ltd case represents a significant development in the interpretation and application of workers’ rights to paid annual leave under EU and UK law.
The Court of Appeal’s decision clarifies that the right to paid annual leave is a fundamental health and safety right that cannot be undermined by employers’ refusal to pay.
The ruling in Smith v Pimlico Plumbers Ltd enhances the protection of workers’ rights by allowing the carry-over and accumulation of unpaid annual leave until the termination of employment, reinforcing the principle that workers should not lose their entitlement due to employer non-compliance.
The judgment also affirms that claims for compensation for such leave can be made within three months of employment termination, ensuring compliance with the effectiveness principle under EU law.
Smith v Pimlico Plumbers Ltd sets a precedent in upholding the integral nature of paid annual leave, ensuring that workers are able to exercise their rights fully, and providing a clear framework for addressing disputes regarding unpaid annual leave.
It underlines the responsibility of employers to respect the rights of workers to paid leave and the role of courts in safeguarding these rights against practices that may undermine them
