Contractor getting caught by IR35 Rules successfully claimed for unpaid holiday pay

The Employment Appeal Tribunal upheld a judge’s decision that a general labourer, who was employed for four years before becoming a labour-only subcontractor for the same company, was a worker for the purposes of the Employment Rights Act 1996 and the Working Time Regulations 1998 (SI 1998/1833). The tribunal therefore had jurisdiction to hear his claims for unlawful deductions in respect of unpaid holiday pay.

The Case

In Plastering Contractors Stanmore Ltd (PCS) v Mr P Holden (UKEAT), Mr Holden a self-employed sub-contractor claimed holiday pay and won. His task involved general labouring, clearing sites and transporting equipment between sites. He was contacted by a manger who would provide him work at a number of sites.

Mr Holden was paid by price or time and no sales invoices were raised by him prior to him receiving payment. There was no obligation for Mr Holden to be offered work or to accept it. He worked almost exclusively for PCS for 16 years. There was no marketing initiative from his side such as researching other contracts. He did not provide a substitute when he could not work due to his wife’s appointments, even when he had the right to do so. All protective clothing, with the exception of safety boots was provided by PCS. Therefore Mr Holden was not a client of PCS but rather he was integrated into PCS’s business. As work from PCS dwindled, Mr Holden left the company without giving any notice.

The Legislation

In order for his claim for holiday pay to succeed it was necessary for Mr Holden to establish that he was a worker by virtue of the Working Time Regulations 1998 (WTR) and the Employment Rights Act 1996 (ERA). Regulation 3(1) of the WTR defines a “worker” as ‘an individual who has entered into or works under (or, where employment has ceased, worked under) – a contract of employment; or
any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work in services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly.’

These regulations confers certain rights upon a worker which include entitlement to annual leave and holiday pay. Being deemed a worker under the ERA provides other rights such as the ability to make a claim for unfair dismissal or redundancy pay.

Outlook For Contractor

Following on from this case, there now is an option for contractors who fall foul of IR35 to consider limiting their losses by reviewing whether they may be able to claim holiday pay.