Is an employee turned self-employed labour-only subcontractor entitled to holiday pay?
Yes, held the Employment Appeal Tribunal, the labour-only subcontractor was a worker with the relevant entitlements, including holiday pay, under the Employment Rights Act 1996 and the Working Time Regulations 1998.
Plastering Contractors Stanmore Limited v Holden
Mr Holden was employed between April 1997 and February 2001 by Plastering Contractors Stanmore (PCS) as a general labourer. It was agreed in 2001 that, for a one-off payment of £200, that he would become a labour-only subcontractor. From 2001 he was paid under the construction industry scheme, under which PCS accounted to HMRC for 20% of his gross pay. Mr Holden engaged an accountant to make sure he paid the correct tax and he was placed on PCS’s database of labour-only subcontractors.
After 2001, Mr Holden would work as and when his services were required on various sites. He worked under the instruction of a PCS supervisor and PCS determined what pay he would receive for the work he undertook. PCS provided some safety equipment and transport for Mr Holden. There was no obligation for PCS to provide Mr Holden with work nor was there an obligation for Mr Holden to accept work. However the Employment Judge held that Mr Holden worked ‘almost’ exclusively for PCS for 16 years, once his day was over he did not work for others except at weekends at the end of his time with PCS to supplement his income. Mr Holden did not advertise himself to the world as a labourer either.
In May 2013 Mr Holden became dissatisfied with having to spend more time at home waiting for work and decided to work for another company. Mr Holden brought a claim to the employment tribunal arguing that for the purposes of the Working Time Regulations 1998 and the Employment Rights Act 1996 that he was entitled to holiday pay and that the failure to pay holiday pay amounted to a series of deductions from wages which he was entitled to claim back to 1998.
PCS argued that Mr Holden was not a worker, and in any event he was only entitled to payment for holiday in the last year of his employment.
The Employment Judge held that there was an oral agreement between Mr Holden and PCS to provide labour in return for payment. His hours were recorded and submitted to PCS’s offices for payment. It was accepted that there was no obligation to fulfil their agreement, however, for over 16 years PCS had regularly offered Mr Holden and expected him to turn up for work. In reality Mr Holden worked in the same way as when he an employee of PCS between 1997 and 2001.
The Employment Judge also held that the fact that PCS provided safety clothing to Mr Holden and a vehicle was provided by PCS if and when Mr Holden needed one for work indicated he was worker. The Employment Judge concluded that Mr Holden had been integrated into the workforce and therefore was a worker having regard to section 230(3) of the Employment Rights Act 1996 and regulation 2(1) Working Time Regulations 1998.
Employment Appeal Tribunal decision
The Employment Appeal Tribunal dismissed PCS’s appeal. The EAT held that when Mr Holden was working for PCS he did so for each period or assignment pursuant to a contract to perform work personally. Since he was working for PCS for the vast majority of the time in question, he was under contract and the necessary mutuality of obligation existed. The EAT also held that the Employment Judge was correct to find that Mr Holden worked “under the instructions of the site supervisor”. The EAT stated that it was fanciful to suppose that there was no right of control.
This is another alarming case for employers in relation to holiday pay. It is important that relationships are properly regulated and that businesses understand the difference between employees, works and genuinely self-employed contractors. This case has now been remitted to the Employment Tribunal to determine the extent of Mr Holden’s claims against PCS, but if he is successful, his claims of unlawful deduction of wages could result in back payments to 1998 giving rise to a significant liability for the employer.