A European Court of Justice (ECJ) ruling has amplified the need for clear definitions of self-employment in the UK.
The ECJ ruled in favour of a commission-based salesman, Mr Conley King, who had been classified as self-employed by The Sash Window Workshop, for whom he had worked for 13 years. Mr King had taken varying amounts of holiday leave each year over that period. Under EU Working Time Regulations, he was considered an independent contracting consultant, not an employee, and as such was not entitled to paid holiday leave.
He declined an offer to move to an employment contract in 2008 but was dismissed by the company in 2012, whereupon he began proceedings to seek compensation of £27,000. This figure includes holiday pay for the leave he had taken as well as leave he had not taken but was entitled to over the entire time he was engaged with the firm.
Using the definition of ‘worker’ from the EU’s Working Time Directive — which is considerably broader than the UK’s more tightly-delimited definition — the ECJ ruled that he was, in fact, an employee and entitled to the full compensation amount (European law overrides national provisions).
The court ruled that there was effectively no time restriction on any leave for which an employee can claim holiday pay. Under the Working Time Directive, claims are permitted to go back more than 20 years. Previously, a limit of two years had been recognised.
Employment law expert Jacqueline McDermott of Keystone Law told Recruiter magazine that the implications of this ruling “are enormous, especially [for] those who employ self-employed contractors, who turn out to be workers”.
McDermott urged employers to review the categories of their workers to make sure that those they designate as contractors are truly self-employed independents under the EU definition. Many may well turn out to be employees.
She advised: “Be very clear about what the job is and what the status of that job will be.”
This was especially important, she added, for employers who had engaged independent contractors on the basis that they would not receive holiday pay.
Her advice was echoed by Fiona Coombe, Director of Legal and Regulatory Research at Staffing Industry Analysts, who urged employers to “review their contractor workforce to assess any possible risks and take advice as to how to manage such risks immediately”.
Contractors engaged via compliant PAYE umbrella companies, however, will be exempt from the ruling, as they provide statutory employment benefits such as paid holiday and sick leave.