Sick leave and holiday pay updates

19 February 2009

Workers on long term sick leave may no longer lose their entitlement to annual leave

Workers on long-term sick leave are entitled to paid holidays, the European Court of Justice (ECJ) ruled recently in Stringer and others v HM Revenue and Customs C-520/06 and the conjoined case of Schultz-Hoff v Deutche Rentenversicherung Bund (C-350/06).

In a decision that clarifies the law after years of confusion, the ECJ ruled that a worker on sick leave accrues annual leave despite not working.
The ECJ also ruled that, at the end of a leave year, a worker on sick leave who has been unable to take annual leave must be allowed to carry it over.
The decision means that a worker returning from one year’s sick leave will be entitled to four weeks paid holiday banked from the previous year in addition to any holidays to which they are entitled for the year ahead.

It also means that an employee who quits or loses their job while on sick leave is entitled to a lump sum payment in lieu of holidays accrued but not taken while they were sick, on top of any redundancy or termination payment.

However, the court ruled that it is for member states to decide whether a worker can take their annual leave during a period of sick leave. The House of Lords will therefore have to determine the position under the Working Time Regulations 1998 (WTR).

The current position on annual leave under EU and UK law

The provisions of the EC Working Time Directive 93/104/EC provides that member states must “ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice”. Currently, under the WTD payment in lieu of this minimum entitlement is prohibited except on termination of employment .

In April 2005, the UK's Court of Appeal ruled in the case of Stringer and others v HM Revenue and Customs that workers absent on long-term sick leave could not claim holidays or holiday pay for the time they were absent from work, nor could they expect compensation for lost holiday if they left their job before returning to work.

The case was passed to the House of Lords who then submitted a reference to the ECJ seeking its interpretation of the relevant provisions of the EWTD. Following this recent guidance from the ECJ the case will now be passed back to the House of Lords for final judgment no doubt overturning the Court of Appeal's earlier ruling.

Impact

A number of unanswered questions remain and will need to be dealt with by the UK courts or by the Government if the legislation needs to be amended.
The main question will be whether the House of Lords should uphold the Court of Appeal’s ruling that the WTR do not allow holiday to be taken during sick leave.
In addition it will be interesting to see whether the WTR can be interpreted to give effect to the sick worker’s right to carry over unused holiday and also the right for a sick worker to gain payments in lieu for accrued holiday on termination. For both of these points the question of carried over leave presents a challenge.

If their Lordships decide that the WTR are incompatible with EU law, the government will be obliged to introduce amending legislation. However, any such amendment will not be retrospective.

Many employers may need to change their policies on accruing and taking holiday in accordance.
However, the ruling applies only to statutory minimum holiday therefore it is possible that employers could take a stricter line in relation to contractual holiday exceeding the statutory minimum.