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Umbrella Companies Could See A Spree Of Class Action suits From Workers Following New Judgment on Holiday Pay

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During his six-year engagement with Pimlico Plumbers, Gary Smith, was never given any right to paid annual holidays, according to Michael Ford, QC at Old Square Chambers. But the heating engineer has seen a change of fate with the Court of Appeal deciding he could recover compensation for all the unpaid leave he took throughout his employment.

The judgment (here) is of importance to all workers, especially umbrella company workers, that have been 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 underpaid holiday pay under WTR, said Ford, who was awarded Employment Silk of the Year at the Chambers Bar Awards in 2015. 

“As a result, the financial costs to employers of wrongly denying worker status are now potentially very high indeed,” said Ford in a statement.

Ford explained that the implications of the judgment and those of King Sash Window [2018] ICR 693 are huge.

Michael Ford, QC, Old Square Chambers

“In essence, 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.”

Michael Ford, QC at Old Square Chambers

Rebecca Seeley Harris, an Off-Payroll and IR35 expert, explained in a LinkedIn post that the decision on the “never-ending saga of Smith v. Pimlico Plumbers [2022] EWCA Civ 70” will act as an industry marker when it comes to worker rights to annual paid leave.

“A worker can only lose this right if the employer can specifically and transparently show that they gave the worker the opportunity to take paid annual leave, encouraged the worker to take paid annual leave and informed the worker that the right would be lost at the end of the year,” said Seeley in her post.

She continued: “If the employer cannot evidence this, then the right does not lapse at the end of the year and carries over and accumulates until termination of the contract. Upon termination, the worker is entitled to a payment in respect of all of the untaken leave.”

This is a very important judgment for all but, specifically for umbrella companies and their workers. Practices for holiday pay need to change and I hope this judgment stands and is not appealed.

Rebecca Seeley Harris

“For far too long, as we saw highlighted in the BBC’s Moneybox programme in March last year, some umbrella companies have been concertedly and consciously withholding holiday pay from umbrella workers that is theirs,” said Crawford Temple, CEO of Professional Passport, the UK’s largest independent compliance assessor for the umbrella company sector.

“This latest ruling means that this can now no longer happen in law.  Umbrella workers will be able to claim what is rightfully owed to them,” said Temple.

The compliance expert is urging workers to check that they are receiving holiday pay reports with every payslip. This should allow them to see, at a glance, what their entitlement and position is so that they know what they are entitled to and are receiving the right amount.

Those providers that have failed to meet the required standards could see themselves exposed to class action claims from workers who have lost significant levels of holiday pay.

Crawford Temple, CEO of Professional Passport

Which workers will be impacted most by the ruling?

According to Temple, the latest ruling will have an impact on those providers who have been engaging workers on a self-employed basis whilst deducting PAYE on their earnings.

“These arrangements are often referred to as The Elective Deduction Model [EDM] or Hybrid model and are arrangements that Professional Passport has never supported.  Now, this latest ruling suggests that workers engaged in this style of arrangement will be able to claim the holiday entitlement they rarely receive.  This is great news for those workers,” he said.

Dave Chaplin, CEO of tax compliance firm IR35 Shield said that the days when umbrella firms used opaque practices to pocket unclaimed holiday pay by practice of “use it or lose it” and refuse to pay are numbered.

That may no longer work, and umbrellas that have not met the standard required to avoid rollover of holiday pay, and have not paid it out, may be in considerable difficulty going forward – should those contractors decide to put in a fairly simple claim. Group action lawsuits may be likely.

Dave Chaplin, CEO of IR35 Shield

Seeley believes that the latest ruling needs to be transposed into statute then the umbrella companies would have to comply and leave no more wiggle room for opaque holiday pay practices.

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1 Comment
  1. Valerie Todd says

    Yes l have been working via umbrella companies since 2019. I have never ever had any paid holidays. They also deduct apprenticeship levy and when asked they are never able to explain.

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