Smith v Pimlico Plumbers – The ‘Gig’ worker does it again

Many employers and ‘gig’ workers are likely to have been impacted by the case of Gary Smith v Pimlico Plumbers since Mr Smith’s industry-changing victory in the Supreme Court in 2018.

In the 2018 case (which we reported here), the Supreme Court held that Smith was a worker for the purposes of the Working Time Regulations (“WTR”), despite him signing an agreement with Pimlico Plumbers that would describe himself as self-employed, and Mr Smith filing tax returns to that effect. The Supreme Court looked past this to examine the true nature of the relationship, the relative degree of bargaining power and other obligations between the parties. Of particular importance, the Supreme Court set out new guidance for the examination of substitution clauses, which has now been utilised heavily in favour of workers and applied in high profile cases such as Stuart Delivery Ltd v Augustine and Uber BV v Aslam.

However, Mr Smith’s recent victory within the Court of Appeal will act to further the rights a ‘gig’ worker will be entitled to under the WTR.

Whilst working for Pimlico Plumbers, despite not having a contractual right to paid annual leave, Smith took unpaid time off. Following the termination of his contract, and bolstered by his re-classification as a worker, in 2019 Mr Smith filed an Employment Tribunal (“ET”) claim for unpaid annual leave, claiming a breach of the WTR and an unlawful deduction of wages in relation to this leave.

In particular, Mr Smith sought to rely on the judgment of King v Sash Window, under which Mr King was entitled to claim payment in lieu of any refused and untaken annual leave, up to a maximum of four weeks for each year during which he was employed by Sash Window and denied his true rights under the WTR.

The ET rejected Mr Smith’s claim for £74,000 for unpaid annual leave, ruling that because Mr Smith had not filed his claims within three months of each holiday period, he was time-barred. In addition, the ET differentiated this case from King, stating that King did not concern annual leave that was actually taken but unpaid, and that it further provided no basis for the suggestion that untaken leave should carry over indefinitely as a result of the employer’s failure to pay for the leave.

In March 2021, Mr Smith unsuccessfully appealed to the Employment Appeal Tribunal, which fully supported the ET’s ruling and held that it had been reasonably practicable for Smith to bring his claim within the relevant time limits (being three months from the end of each holiday period).

However, Mr Smith was successful in bringing an appeal to the Court of Appeal, which overturned both the ET and EAT’s ruling.

In doing so, and in addition to ruling that King was applicable, the Court of Appeal set out three key principles:

A worker can only lose the right to take annual leave at the end of the year (where the right is disputed and the employer refuses to remunerate it) where the employer satisfies the following burden:

It specifically and transparently gave the worker the chance to take paid annual leave;
It encouraged the worker to take such leave; and
It informed the worker that they would forfeit their right to such leave if they did not take it by the end of the holiday year.

Where the employer fails to meet this burden, the worker’s right to leave will carry over to the next holiday period and accumulate until the termination of the contract. Upon termination, the worker will then be entitled to payment in lieu of any untaken or unpaid leave.

In respect of limitation periods, the claim was brought in time because Mr Smith was denied the opportunity to exercise his right to paid annual leave throughout all engagement with Pimlico Plumbers. In particular, as Pimlico Plumbers could not discharge the relevant burden, the right did not lapse and it carried over and accumulated until the termination of the contract. Smith’s entitlement to payment would continue until he was actually paid.
The Court of Appeal finally gave a strong provisional view that the EAT’s ruling in Bear Scotland v Fulton that a ‘series of deductions or payments’ from a worker’s wage (in respect of an s23(3) ERA 1996 claim) would be broken by a gap of at least three months between any underpayment (and thus exclude any earlier deductions) was wrong.

The claim was remitted back to an ET to determine Mr Smith’s award.

What does this mean for employers?

The past four years have shown a trend in bolstering the rights for so called ‘gig’ workers.

Whilst each employer-worker relationship must be examined carefully on the facts to determine the worker’s correct status, it is clear from this case that the following principles should be considered in the case of employees and workers:

An employer must be very clear on its annual leave procedures and policies;
Preventing your workforce from taking annual leave, or not paying them for such leave, is likely to amount to an unlawful deduction in wages or a breach of the WTR; and
A previously mis-classified worker may be entitled to holiday pay long after the relevant holiday year.

At Ashfords, we will be able to advise you on all aspects of the WTR, whilst reviewing your current annual leave policies and practices to ensure that you are either compliant or best placed to remedy any existing breaches.

For further information on this article, please contact Charles Pallot or another member of our Employment team.