Broad discussions and the media interest were rekindled when the European Court of Justice handed down its ruling in King vs. Sash Window Workshop Ltd with respect to the status of a self-employed person and paid leave.
The article has been prepared for Legal and Tax Newsletter of DTI-HK.
We live in times of technological upheaval.Both in our private lives and at work, the use of a diverse array of apps influences the way we think and act. On the whole, the advantages prevail, but sometimes the technological revolution complicates established practice. The booming „gig economy“, the greater demands on flexible work structures, and the call for the optimization of costs (especially taxes) have given rise to new types of „employment“ – in fact, short-term engagements outside proper labor-law employment relationships on the basis of partner agreements or cooperation agreements (think UBER, Airbnb, and the like). What is the judiciary’s take on these forms of „collaboration“?
A decision recently made headlines in England in which the English courts dealt with the matter of individuals driving for UBER (i.e., specifically, the character of their legal relationship with the company UBER), and found that these drivers were „workers“ – that is to say, that they should be considered proper employees of UBER – even if they pursued their gainful occupation for UBER as „self-employed workers“ on the basis of the relevant agreements.
In the immediate wake of this decision, the discussions and the media interest were rekindled when the European Court of Justice handed down its ruling in King vs. Sash Window Workshop Ltd („Sash WW“). A certain Mr. King had been working for Sash WW from 1999 through 2012. His status throughout this period was that of a self-employed person. Wanting to keep it that way, Mr. King had turned down an earlier offer by Sash WW to continue to work for them within the context of proper employment. Needless to say, as a self-employed individual, Mr. King was not entitled to paid leave. None the less, having retired, he brought a claim in court against Sash WW seeking compensation both for (unpaid) leave of absence which he had taken and for his entitlement to vacation which he had never taken but to which he said he had accumulated a claim over the time of his work for Sash WW.
Before the matter found its way to the docket of the ECJ, the competent British courts had already ruled that Mr. King, even though he had worked with Sash WW as a „self-employed person“, had been a „worker“ for the purposes of Directive 2003/88/EC, concerning certain aspects of the organisation of working time (the „Directive“). Given this, the European Court of Justice pronounced no opinion on this particular question. Its ruling clearly shows that it endorsed the conclusions drawn by the British courts regarding the true character of Mr. King’s work for Sash WW.
At this point, we ought to mention that „worker“ as a term is as of yet still undefined in Community law, though there are some budding efforts on the part of the European Commission to give the term a clear definition. Even so, the case law of the ECJ shows clearly that the understanding of „worker“ (or „employee“) in European law is entirely independent from that of the individual member states‘ jurisdiction, which is why someone may qualify as „self-employed“ under the laws of a specific member state but still be a „worker“ when Community law is being applied. In this respect, the Court of Justice has openly declared that, where in doubt, the term „worker“ must be construed broadly rather than restrictively. ECJ case law allows for the conclusion that a „worker“ is someone who renders services to someone else for a specific time period, under the direction and management of that other person, and who draws compensation (remuneration) for his or her performance. In other words, from the vantage point of European law, the formal contractual relationship between the involved participants is not as important as whether there exists an actual relationship between superior (employer) and subordinate (worker).
Once the courts in England had ruled that Mr. King was a worker for the purposes of the Directive, the Court of Appeals referred several questions to the European Court of Justice for a preliminary ruling regarding the application of Article 7 of the Directive (according to which member states shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks per calendar year). From among this referral, we shall mention only the key questions:
- If the worker does not take all or some of the annual leave to which he is entitled in the leave year when any right should be exercised, in circumstances where he would have done so but for the fact that the employer refuses to pay him for any period of leave he takes, can the worker claim that he is prevented from exercising his right to paid leave such that the right carries over until he has the opportunity to exercise it?
- If the right carries over, does it do so indefinitely or is there a limited period for exercising the carried-over right?
The ECJ came down in unambiguous favor of Mr. King. In the court’s view, the employer only derived advantages of the fact that Mr. King took no vacation. In addition, it is the obligation of the employer to make the correct judgment that someone who works for them in a superior-subordinate relationship will enjoy the rights of an employee.
With all this in mind, the ECJ ruled that a worker who takes no vacation because the employer does not pay them during such times of leave may argue that they were prevented from taking vacation by the employer. In such a case, the right of the worker to paid vacation exists unless and until the worker has been able to take paid leave (or until the relevant employment relationship has been terminated).
Against this backdrop, Mr. King is entitled to retroactive compensation for leave not taken, since the very beginning of his „collaboration“ with Sash WW, because the employer must not profit from its decision to prevent the worker from taking vacation. In this respect, the ECJ dismissed the argument that Mr. King had been offered by Sash WW, over the course of the years, to work for the company within the framework of „regular“ employment, and that it was he himself who turned down these offers.
It is easy to see how this ruling could have caused uproar. It provides workers who were wrongly categorized as „self-employed“ and who never took vacation (because such leave of absence was not compensated by the employer) with a tool how to enforce retroactively a claim for compensation for the untaken vacation. What is more, the ECJ’s decision sets no limit as to the time period within which such a claim must be invoked.
Within the context of the trend towards a „gig economy“, the European Court of Justice’s decision in King vs. Sash WW has tilted the balance in favor of the worker, and in so doing has opened the door for settling the claims of workers who, for various (mostly economic) reasons, were denied the status of proper employees.