In a long-running legal battle, heating engineer Gary Smith, who worked for the company between 2005 and 2011, claimed he was owed holiday pay by Pimlico after the Supreme Court had previously ruled separately that he was a worker and not self-employed.

In his subsequent case that followed on from the employment status ruling, Smith’s claim for backdated holiday pay was at first rejected by an employment appeal tribunal on the grounds that he had not filed his claim quickly enough.

Under tribunal rules, Smith should have made his claim for missed pay within three months of each holiday period, dating back to 2005.

But the Court of Appeal has now overturned the lower courts’ judgments in a landmark decision this month that will have far-reaching impacts across the industry.

It held that ‘a worker can only lose this right if the employer can specifically and transparently show that they gave the worker the opportunity to take paid annual leave, encouraged the worker to take paid annual leave and informed the worker that the right would be lost at the end of the year.’

This means that ‘if the employer cannot evidence this, then the right does not lapse at the end of the year, it carries over and accumulates until termination of the contract.’

The ruling has prompted several industry trade bodies to write to its member contractors.

The Electrical Contractors Association warned members the ruling was important to all employers who deny workers the right to paid annual leave, usually on the basis that they are ‘self-employed.’

It reminded firms of the importance of correctly determining employment status and implementing the applicable rights that status confers.

The industry’s largest payer of subcontractors, Hudson Contract, said the ruling upped the ante but added it all hinged on ensuring the correct employment status.

Ian Anfield, managing director of Hudson Contract, said that it was important to remember that not all subbies are automatically ‘workers’.

He said: “The key fact in the Smith v Pimlico Plumbers case was that very early on an Employment Tribunal found Smith was a ‘worker’ – without that ruling the latest simply would not have happened.

“However, the bigger picture is that many users of subbies will be at risk.

“We have seen an explosion of so-called commercial contractors and employment agencies setting up CIS payroll companies to generate cash.

“The vast majority cut corners and wouldn’t have the funds or the knowledge to deal with complex cases.

“This places their clients at huge risk so there could be thousands of subbies out there eyeing Pimlico-type claims. If the economy turns and things tighten up we can expect to see lots of these cases go to court.

“During the last recession, before most of our competitors even existed, we fended off a number of spurious worker claims and our experience goes back even further than that.

“The question for contractors going forward is whether their current arrangements are watertight and can stand up to scrutiny.

“There’s no doubt this ruling by the Court of Appeal has upped the ante by increasing financial liabilities if a status case is lost, so it must be time to re-examine and scrutinise the credibility of what payroll companies claim they bring to the table.”