Contractor loses accrued holiday pay furlough claim

A contractor has been unsuccessful at court in trying to claim against his recruitment agency that holiday pay accrued to him and was owed while he was on furlough.

Mr D Perkins tried to argue that while he was on a contract for services via The Best Connection Group Ltd, he was eligible to accrue annual leave during the time he was furloughed under the Coronavirus Job Retention Scheme.

But rejecting his claim against TBCGL, an employment tribunal said that while Perkins was on furlough, he was not a ‘worker’ for that period and so was not entitled to worker rights such as holiday pay accrual.

As well as him not being covered by the 1998 Working Time Regulations when he wasn’t actually working, his contract for services did, conversely, cover TBCGL in not making pay-outs during his downtime.

'Because the contract was worded correctly, Perkins failed'

In particular, Perkins’ contract with the agency stated that he would not “receive payment from TBC[GL] or its clients for any time not spent on assignment whether in respect of holidays, illness or absence for any other reason.”

Adrian Marlowe, managing director of Lawspeed told ContractorUK: “Even though no change was made to the contract, the contractor sought holiday pay, but because the contract was correctly worded, the claim failed.”

Also chairman of the Association of Recruitment Consultancies, Mr Marlowe has been advising since April that holiday pay does not accrue for agency workers on furlough unless the engagement contract between the agency and worker normally permits such accrual in-between assignments.

'Aligns with government guidance'

Yesterday, a pleased Recruitment & Employment Confederation pointed out that the tribunal’s decision broadly “aligns” with the government’s published guidance on holiday pay and furlough.

The government has said: “Some agency workers on a contract for services may not be entitled to the accrual of holiday or to take holiday under the Working Time Regulations while on furlough because they are not workers or treated as workers under those regulations when between assignments or otherwise not working on assignments.

A May 2020 update by the government also added at the time: “Contracts may nevertheless include holiday provisions which will continue to operate in the same way as they did prior to the furlough period.”  

'Unauthorised deduction'

But the guidance was wrongly interpreted and relied upon in a separate case concerning holiday pay accrual and furlough, where a temporary agency worker was ruled as being owed accrued holiday pay while on furlough.

In fact, accepting a Ms Healy’s claim for “unauthorised deduction of wages,” but finding against her agency Start People Ltd, a tribunal upheld the principle that “employees and workers had the same rights as before furlough.”

Crucially, employment judge Shore found that despite being furloughed, Ms Healy’s assignment with an end-client never actually ended, meaning she “continued to accrue holiday pay for the entire period,” advises Brabners.

'Furlough doesn't alter one's rights'

“The judgment makes it clear that placing an individual on furlough does not change an individual’s employment rights, including, for example their right to holiday pay,” says the law firm’s Hena Kapadi.

“[So] where a worker’s assignment has not ended by being placed on furlough, they will continue to accrue holiday throughout the entire period in the normal way -- although this is a first instance decision, which means it is not binding”.

Speaking yesterday, tax lawyer Rebecca Seeley Harris pointed out that the decision in Perkins Vs TBCGL is not binding either.

'Useful guidance on holiday pay accrual during furlough'

She told ContractorUK: “It will only be binding once it reaches the EAT. However [even at this stage the decision provides] useful guidance for anyone faced with the decision of whether holiday pay would have been accrued during furlough.

“And in the Perkins case, the tribunal is following the government guidance that a temporary worker on a contract for services is not on assignment during the furlough period.”

Given the existence of one tribunal finding holiday accrual was not owed (Perkins) and one tribunal finding holiday accrual was owed (Healy), legal expert Roger Sinclair says it’s clearly the detail which decides.

'All comes down to the detail'

“Whether the individual was an ‘employee’ or a ‘worker’ - sometimes referred to as a ‘limb (b) worker’ [is the key],” Sinclair, legal consultant at egos began in a statement yesterday to ContractorUK. 

“Such a ‘worker’ provides services personally under a contract for services, a contract which does not tick all the boxes to qualify as an ‘employment contract’, even though the worker will nevertheless generally be taxed under PAYE. 

“In the case of an individual who is engaged under an employment contract, paid leave entitlement will generally continue to accrue for so long as the employment contract remains in place. [So] it all comes down to the detail of the way in which the worker was engaged by the agency, and how it was documented.”

'Fractured environment for workers'

However, it seems unlikely that it should be left to workers to resort to the courts to get a clear view of those details, to find if they are owed money to help them get by (Healy’s claim was £650).

“[These judgments] further highlight the fractured environment for ‘workers’ who have no clarity of what they are entitled to,” regrets Ms Seeley Harris, of ReLegal Consulting.

“The government should at the very least be following the guidance of the Taylor Review into Modern Working Practices and the Good Work Plan in ensuring there is clarification for the workers and the engagers.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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