Employment highlights - Holidays and sickness - where are we now?

March 2012

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Introduction

In previous editions of Employment Highlights we have discussed the topic of holiday pay and sick leave and in particular the decision in Stringer and Others v HMRC. There have been a number of recent cases and we will consider the impact of these tribunal decisions and also look at the proposals in the Government’s publication “Consultation on Modern Workplaces” published in May 2011.

Background

The Working Time Regulations 1998 (the WTR) implement the provisions of the EC Working Time Directive. The main provisions of the WTR are as follows:

  • Workers are entitled to 5.6 weeks paid holiday in each leave year.
  • The first four weeks statutory holiday must be taken in the leave year in which it is due and cannot be replaced by payment in lieu or carried over into the next holiday year.
  • An employer can permit a worker to carry over the additional 1.6 weeks into the next leave year.
  • A worker should give notice to the employer to take holiday which should be at least twice the period of the annual leave proposed.
  • Claims should be made within three months of an employer’s failure to make a payment.
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The decision in Stringer

In Stringer and Others v HM Revenue and Customs; Schultz-Hoff v Deutsche Rentenversicherung Bund (2009) the European Court of Justice (ECJ) ruled that a worker continues to accrue holiday rights whilst on sick leave and that it is for Member States to determine whether workers can take their statutory holiday whilst on sick leave. The ECJ also held that if the worker has not had the opportunity to take the annual leave in the year that it accrues then the leave can be carried over to the next holiday year.

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Other case law developments - a reminder

Following the decision in Stringer, the ECJ ruled in the case of Pereda v Madrid Movilidad SA (C-277/08) that where a worker’s pre-arranged statutory holiday coincides with a period of sick leave then the worker will be entitled to take the holiday in the next holiday year where there is not enough time left in the current holiday year to do so.

Various cases since that decision have considered the application of that rule in the UK and how it can be interpreted in accordance with the WTR. In particular, the case of Khan v Martin McColl (ET/1702926/09) considered whether a payment made by an employer in respect of holiday accrued but untaken in the final year of employment can effectively end a series of unauthorised deductions going back several years. The employee brought a claim for unlawful deductions in respect of holiday he was entitled to but did not take in the previous holiday year while off sick. The tribunal held that since the payment for the final holiday year had been made, the payment for the previous holiday year expired three months after the right arose and his claim was therefore out of time. The tribunal also held that the employee would only be entitled to carry forward the holiday entitlement into the subsequent holiday year if he had been denied his holiday. As the employee had not requested any holiday in that leave year, he had not been denied his entitlement and therefore was not entitled to carry forward his six weeks holiday to the next holiday year in 2009. In another case, Walsh v Lancashire Care NHS Foundation Trust (ET/240607/07), the tribunal held that in order to be entitled to holiday pay a worker must serve the required notice to take holiday under regulation 15 of the WTR. The employee in this case had been on sick leave and at no time had requested annual leave during his sickness absence. The tribunal held that as the employee had not complied with the requirements to serve notice to take holiday during this time he had lost his entitlement to holiday pay in the relevant holiday years.

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Case law 2011

There have been a number of recent cases considering the rights of an employee to holiday entitlement in the context of sickness absence. In the case of NHS Leeds v Larner [2011] IRLR 894 the EAT held that an employee’s failure to request leave whilst off sick did not prevent her from carrying over the leave to a subsequent leave year. It held that she was entitled to be paid in relation to that leave on termination of her employment. This decision therefore seemed to contradict the employment tribunal decision in Walsh v Lancashire Care NHS Foundation Trust.

In Mrs Larner’s case, she went absent on sick leave on 5 January 2009 and did not return to work until her employment terminated on 8 April 2010. The employment tribunal upheld her claim for holiday pay for the leave year from 1 April 2009 to 31 March 2010. Her employer appealed to the EAT arguing that she had lost her statutory holiday entitlement because she had failed to give notice that she wished to take the holiday before the end of the holiday year on 31 March 2010. The EAT upheld the tribunal decision that a worker who had been on sick leave for an entire leave year and had not taken any holiday whilst off sick was entitled to be paid in relation to that year’s unused statutory holiday entitlement on the termination of her employment. The fact that the employee had not requested holiday during the relevant leave year did not mean that she lost the right to the payment. The EAT effectively followed the Pereda case and held that the statutory holiday entitlement in that leave year could be carried over to the next year whether or not the employee formally requested the leave.

In a different EAT decision in the case of Fraser v South West London St Georges Mental Health Trust, the EAT held that if a sick employee wishes to carry over their statutory holiday to another leave year they must make a request to the employer and failure to make such a request means that the untaken statutory holiday cannot be carried over into the next leave year.

In the case Mrs Fraser went on long term sick leave in November 2005 and did not return to work before her dismissal in October 2008. On the termination of her employment the employer paid her in lieu of the statutory holiday entitlement for the final leave year but not in respect of the holiday entitlement for the previous two leave years. The employee brought a claim for the outstanding holiday pay. The tribunal held that although the employee had accrued the right to take holiday during the two holiday years, she had not given notice under regulation 15 to exercise that right and as such her right to take statutory holiday had been extinguished at the end of each leave year under regulation 13(9). The EAT held that the previous cases of Canada Life and List Design had been wrongly decided on whether or not an employee had to request holiday. It held that it could not be right for workers to receive statutory holiday pay when they have not taken holiday.

The question of whether sick workers must actually give notice to take or over their holiday entitlement will be considered by the Court of Appeal as the Larner case is being appealed

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How much sick leave can be carried over?

Another recent case has considered the period for which annual holiday may be carried over by workers who are on sick leave. In KHS AG v Schulte the ECJ held that a period of 15 months should be sufficient for workers who are on sick leave. In that case, the individual was employed in Germany and under the terms of a collective agreement, he would be entitled to carry over any leave which had not been taken due to sickness for 15 months from the date of the end of the relevant leave year. The employee was absent from work from January 2002 until the date of termination of his employment in August 2008. He brought a claim for pay in lieu of holiday accrued in 2006 and 2008. The employer argued that under the terms of the collective agreement the holiday from 2006 had lapsed as more than 15 months had passed since the end of that year. The German court referred questions to the ECJ as to whether national laws or practices under which annual leave entitlement lapses after the end of the leave year or carry over period are permissible. The ECJ held that the carry over could be time limited and that the limit of 15 months that applied in this case was lawful under the Directive.

The court suggested that the carry over period should be longer than the reference period in respect of which the leave is granted. Therefore, if leave is allocated on a yearly basis then the carry over must be substantially longer than a year. It is therefore thought that carry over of holiday should be permitted for between 15 months and 18 months after the end of the relevant holiday year .

One final court decision is the decision of Dominguez v Centra Informatique du Centre Ouest Atlantique. In this case the ECJ considered whether Member States could make different provisions in relation to additional annual leave. The case firstly considered whether a requirement in French domestic law that entitlement to annual leave in a particular leave year was conditional upon the worker having carried out a minimum of one month’s work during that year was incompatible with the Working Time Directive. It also clarified that Article 7(1) would have direct effect but only for those employees who worked for an emanation of the state. The final important point however was in relation to holiday in excess of the statutory minimum required under the Directive. The Court held that the right of Member States to apply different provisions to paid annual leave which is in excess of the minimum period of four weeks is compatible with the Directive and therefore, in the UK, it would be possible for the 1.6 weeks additional holiday entitlement to be treated differently to the right to four weeks annual leave. It is arguable therefore that it may be permissible for the additional 1.6 weeks not to accrue during sick leave.

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Consultation on Modern Workplaces

In May 2011, the Government published its Consultation on Modern Workplaces which contained a variety of proposals including changes to the WTR on holiday entitlement and sick leave. The proposals set out in the consultation are as follows:

  • A worker will be able to carry over holiday where he has been off work for a period of sickness absence and holiday has accrued. The employer will be able to require the worker to take the unused leave on his return or if there is a business need will be able to require the worker to carry it over. The carry over provisions will be limited to the 4 weeks holiday under the Directive (i.e. it will not be necessary for the employer to carry over the additional 1.6 weeks.)
  • The accrual of annual leave extends to the full 5.6 weeks so a worker will accrue 28 days but may only be required to carry over 20.
  • The Government will also consider the carry over of holiday accrued during family leave. This carry over would extend to the full 5.6 weeks.
  • The Government is also considering whether it should be possible for workers to agree to buy out the additional 1.6 weeks holiday (i.e. the amount in addition to the 4 weeks required under the Directive).
  • Workers may be required to carry over 1.6 weeks holiday in cases of genuine business need.
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Outstanding points

Although the Consultation on Modern Workplaces has indicated that there will be changes to the WTR, there are still some outstanding areas of uncertainty and we will wait to see whether the Government will deal with these points within their amendments. For example, is the Larner point still effective as to whether an employee must request holiday or risk losing it? Also, further to the point raised in Pereda, can a worker always request to reschedule their holiday if it falls during sickness absence and what evidence is required from an employee for them to reschedule?

We shall of course keep you informed of future developments but, in the meantime, if you have any queries, please contact us.

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