Court of Appeal ruling regarding employees’ rights to holiday and holiday allowance following reclassification of employee status

At a glance

• The Court of Appeal (Court) examined the entitlement to holiday pay of employees who were originally classified as independent contractors.
• The Court found that the claims for holiday allowance (for the period 2008 - 2018) were not time-barred.
• The employer was ordered to pay the reclassified employees around NOK60 million in holiday allowance for the years 2008 - 2018.

Background

This case concerns a retroactive settlement claim for holiday allowance owed to previously misclassified employees in a private care company. It had been legally established in previous judicial proceedings that the company's practice of staffing 24-hour care homes with independent contractors / consultants rather than employees was unlawful. As a result, the employees had been deprived of basic employee rights such as overtime pay, sick pay, holiday pay and pensions.

Limitation of holiday entitlements

In this new case against the same company, it was undisputed that each individual appellant, as an employee of the company, was entitled to holiday leave and holiday allowance in accordance with the provisions of the Norwegian Holiday Act. The issue, however, was whether parts of the claims for holiday allowance (for the period 2008 - 2018) fell outside of the statutory limitation period of three years. The Court ruled that the holiday allowance claims were not time-barred, and based its view on the fact that holiday allowance is transferred from year to year and is only paid out when the related holiday is taken in accordance with the Holiday Act's system, or when the respective employment relationship is terminated.

Further, the Court discussed three other grounds on which the holiday allowance claims could possibly be deemed forfeited or reduced. The Court found no legal basis to reduce the holiday pay, therefore concluding that the company was fully liable for the pro forma arrangements designed to ensure continued work for each individual in the company without them being formally employed. The company was ordered to pay the reclassified employees around NOK60 million in holiday allowance for the years 2008-2018.

Practical note

The ruling highlights the severe consequences that may follow if employees are reclassified, even in cases where there may be some consensus between the parties regarding such arrangement. The judgment also provides clarity with regard to the limitation period for holiday allowance.