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Businesses beware: Self-employed could demand full holiday pay dating back 20 years

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Written by: Andrew Merrell | Posted 07 December 2017 10:16

Businesses beware: Self-employed could demand full holiday pay dating back 20 years

A ‘perfect storm’ looms for businesses that use freelance workers, warns one of the region’s leading employment lawyers who says if firms do not act it could be the ruin of many.

News watchers will be familiar firm Uber’s battles to resist pressure to accept the thousands of delivery riders and drivers that do its bidding are in fact its employees and entitled to holiday pay.

In November the firm lost its employment tribunal appeal which meant all the freelances it used would be classified as workers and entitled to sick pay, holiday pay and the minimum wage.

If it loses its appeal of that decision the extra costs could put the future of the US tech firm in the UK in doubt, and it is a similar situation now lying in wait for the many firms which use or have used freelancers.

Darren Sherborne, of Cheltenham-headquartered Sherbornes Solicitors Ltd, said a judgement passed down at the end of last month (November 30, 2017) had “wide implications for employers and must be understood”.

 
Darren Sherborne of Sherbornes Solicitors

That ruling (King v Sash Windows (2017)) concerns a staff member who had regarded himself as self-employed for 20 years, but when he left the firm challenged that status in a tribunal – and won.

Suddenly the company became not just his former employer but liable for two decades of holiday pay payable at four weeks a year.

Unless companies take note and establish now the status of their staff in law and begin paying holiday pay where necessary they too will be wide open to potentially ruinous claims, said Mr Sherborne.

“There are two things to remember when talking about accrued and unpaid holiday. One is that the Working Time Regulations say that if three months pass without an unpaid holiday it puts failure to pay out of time and so cannot be pursued in tribunal.

“The second is that the case of Bear Scotland last year set out that if there was no gap of three months then the most a worker could go back in terms of time was two years. This limited the claim to a maximum of eight weeks unpaid holiday.”

But things have changed, and this is what has set off the red light at Sherbornes Solictors.

“This case has undone both of those previous principles. In short a person who turns out to be a worker not self-employed, and who has not been able to take paid holiday, will be able to claim four weeks per year of service going back to 1996 (the year the Working Time Directive came into force).”

Put in simple money terms, if five self-employed staff turn out to be workers and had an average five years’ service and an average £500 per week earnings then the bottom line would be the company out of pocket to the tune of £50,000.

The extra element that makes this all a “perfect storm” is that the above ruling coincides with another significant change which makes it much more likely companies will be challenged.

“Up until now the tribunal fees regime has prevented people going to tribunal with holiday claims because the amounts at stake did not justify the fees.

“Employers face a perfect storm on this as the tribunal fees have gone completely and the amounts that can be claimed have increased considerably.”

Mr Sherborne Added: “The best practical step that can be taken at present is to re-examine the arrangements any business has in relation to staff who are thought to be self-employed.

"Work out whether they are legally self-employed or whether they are just labelled self-employed and are actually workers.

“If they are workers there may be steps you can take to limit liability long-term, but it will certainly involve starting to pay holiday, and you will only know is you are at risk if you examine their status.”

 

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