Case law on holiday entitlement

​​UKEAT/2015/0071
Issue: Holiday entitlement – sick leave

The claimant, a printer, had an accident leading to four years of sick leave. He never returned to work. When his employment was terminated he claimed payment for 60 days’ of untaken holiday for three of the years he had been off sick.

The Employment Appeal Tribunal (EAT) considered the following two questions:

• To carry over holiday accrued during sick leave do employees have to show that they cannot take the holiday because of their medical condition?
• Is the right to carry over untaken holiday indefinite?

The EAT said no to both these questions. Employees on sick leave do not have to show that they cannot take annual leave because of their condition. They can take leave if they choose, or they can take it later, even in the next holiday year.

However an employee’s entitlement to carry over holiday is not open-ended. In this case the EAT said that the claimant was only entitled to the leave for the last holiday year he claimed for, as more than 18 months had elapsed since the end of the previous two holiday years. Therefore, employees may carry forward holiday for a further 18 months from the end of the year in which the holiday arose. The EAT gave both parties the right to further appeal.

Implications for employers

• Workers are entitled to 5.6 weeks’ statutory holiday each year. This is four weeks which derives from EU law and an additional 1.6 weeks’ holiday which derives from UK law.
• Employers can expressly agree for the additional holiday entitlement to be carried forward into the next leave year.
• Whilst generally there is no right to carry holiday forward into the next holiday year, the rules about annual leave and a period of sickness are different.
• Employees can carry over the four weeks’ holiday entitlement if a worker was unable or unwilling to take that leave because they were sick.
• Many employers also permit any holiday entitlement that has not been taken because of maternity leave to carry over into the following leave year.
• Employers cannot force employees to take holiday while they are sick.
• Employers should therefore pay employees sick pay rather than holiday pay for the period during which they were ill and unable to take holiday.
• Employees always accrue holiday while on sick leave.
• As sick leave and holiday leave are different, employees can take holiday during sick leave, but only if they wish.
• An employee who has exhausted company sick pay can be paid holiday pay in respect of part of their absence.
• Employees on long term sick leave can therefore carry up to a maximum of four weeks unused holiday over to the next holiday year.
• If employees recover and return to work before the end of the holiday year, but fail to take their holiday during the remainder of the year they may lose their right to carry over.
• Employees on extended sick leave may carry forward holiday from more than one holiday year and let their annual leave run into the next holiday year.
• Employers only have to allow holiday to be carried forward for a period of 18 months.
• So where annual leave is carried over in these circumstances, it must be taken within 18 months of the end of the relevant year so employees cannot accrue unlimited amounts of holiday.
• Employees could therefore be entitled to take a long holiday when they finally return to work or, if they leave they may be entitled to a significant payment for untaken leave.
• Employers should update their sickness absence policies so that employees know their rights to annual leave when they are off sick.
• Employers should keep updating employees on their current holiday entitlement, the 18 month ‘cut off’ period, and when that period expires while the employees are on sick leave.

UKEATS/0015/12

A handyman and car wash worker worked for a company for a number of years until he suffered a stroke in July 2010. He was then on sickness absence until he resigned in June 2011. He was entitled to 28 days’ statutory annual holiday and his sickness absence had spanned across two leave years. On the termination of his employment he was not paid in lieu for the leave that he had been unable to take during these two leave years due to his sickness. He claimed unlawful deduction of wages for all the holiday accrued during this period, including the the additional 1.6 weeks statutory leave, provided for under the UK Working Time Regulations which is over and above the four weeks’ annual leave provided for under the EU Working Time Directive.

This decision case follows on from two earlier cases, NHS Leeds v Larner (25 July 2012) and Neidel v Stadt Frankfurt am Maim (C-337/10, 3 May 2012). The first case confirmed that it was possible to interpret the law so that carry over was possible for the four weeks’ provided for under the EU Directive. In the second case the European Court of Justice (ECJ) held that where national law provides for additional statutory leave each member state can basically decide what to do about carry over and payment in lieu of additional leave.

The Employment Appeal Tribunal held that the employer was not required to allow the additional 1.6 weeks to be carried over, or replaced with payment in lieu on termination. Employers are required to permit employees to carry over the four weeks' annual leave provided for under the EU Working Time Directive (WTD) where employees have been unable to take this due to sickness. However, employers are not also required to allow employees to carry over the additional 1.6 weeks' annual leave provided for under the domestic legislation. Such carry over is subject to agreement between the employer and employee. In this case there was no relevant agreement and the employee was not entitled to payment in lieu of the additional leave accrued during his absence. The EAT ordered that his payment therefore be deducted accordingly.

Implications for employers

• The WTD provides that employees are entitled to four weeks’ paid annual leave.
• The UK Working Time Regulations (WTR) provide for an additional 1.6 weeks’ paid annual leave, making employees entitled to 5.6 weeks’ leave in total.
• Regulation 13A(7) of the WTR provides that the 1.6 weeks cannot be carried over without a ‘relevant agreement’ between the parties.
• This case provides clarification following Larner. Additional leave cannot be carried over without a relevant agreement between employer and employee.
• This case is consistent with the government’s proposed amendments to the WTR to clarify that four weeks annual leave can be carried over where employees are unable to take the leave due to sickness.

[2012] EWCA Civ)​
Issue: Accrual of holidays during sick leave

In this long running case a clerical worker in the NHS was absent on sick leave for the whole of the leave year April 2009 to March 2010. She took no paid annual leave during this period. When she was dismissed she was not paid for the untaken leave. The NHS said she was not entitled to this leave because she had not requested that it be taken or carried over to another leave year.

The Court of Appeal has now confirmed that the clerical worker was entitled to payment in lieu of this untaken leave on termination, even though she had not requested for it to be carried over to another leave year.

Implications for employers

• Employers should pro-actively manage long-term sickness absence by having policies in place, keeping in touch with workers, obtaining medical evidence where appropriate and working with workers towards an appropriate return where possible.
• Employers must allow holidays to continue to accrue during periods of sickness absence, as the European Court of Justice (ECJ) had previously decided in the case of Stringer in 2009.
• Employers must allow workers who are unable to take leave because of sickness absence to take the leave at another time if necessary by carrying the leave over to another leave year.
• Employers must allow workers on sick leave to be paid in lieu of holidays on termination of employment.
• Employers must allow workers who cannot take annual leave because of sickness absence to carry leave over even if they have not requested leave.
• It appears employers can currently limit the carry over period for untaken leave by contractual or collective agreements.
• Employers should be aware of the law since KHS AG v Schulte (unreported, 2012 [IRLR] 156, ECJ) which held that there is a limit to the length of time a worker on long-term sick leave can continue to carry over untaken annual leave. The European Court of Justice (ECJ) stated that any carry over period must be substantially longer than the leave year and accepted in that case that a 15 month carry over period was appropriate. Hopefully the Government will clarify the length of carry over periods in new legislation.
• The Working Time Directive gives all workers four weeks' paid annual leave.
• Employers can currently limit the amount of leave that workers can carry over to the four weeks' leave under the Working Time Directive, rather than 5.6 weeks' leave under the Working Time Regulations or the employees' contractual entitlement.
• The ECJ says that Member States with more than the minimum four weeks' annual leave can decide whether to provide for payment in lieu of the additional leave that cannot be taken due to sickness - Neidel v Stadt Frankfurt am Maim 2012 [IRLR] 607, ECJ).
• Employers need to look out for statutory holiday leave and sickness absence as this remains a very complex area generally.
• Employers may be liable for holiday pay going back years.
• Workers on long term sick leave could potentially accumulate significant periods of untaken leave which should be taken, or paid for, once the worker returns to work or, leaves.
• Following Stringer there was some scope for employers to refuse to carry forward holidays (or holiday pay in lieu on termination of employment) if the worker hadn't requested holidays - Fraser v Southwest London St Georges Mental Health Trust 2012 [IRLR] 100, EAT). This is no longer a safe strategy for employers.
• Now employers should not refuse to carry forward holidays and those with a ‘Use it or lose it policy should amend it.
• A worker who gets sick during pre-arranged annual leave can stop their annual leave, take sick leave, then resume the remainder of their annual leave at a later date - ANGED v Federacion de Asociaciones Sindicales 2012 [IRLR] 779, ECJ.
• Employers cannot force staff to take paid holiday leave during sickness absence to stop their staff accruing long periods of untaken leave.
• The Government is proposing reform of the law relating to holiday and sickness. (Further clarity is needed as Adams and another v Harwich International Port Ltd (unreported, ET/1503084/10 and 1503085/10 2011, 29 June 2011 ET) held that sick workers are entitled to carry over the additional 1.6 weeks' leave which European Union law has said is not necessary).
• Meanwhile employers should check contracts and absence policies and perhaps limit the holiday that can be carried over to the four weeks' leave from the Working Time Directive.
• Employers may amend precedent contracts to contractually limit the carry-over period for leave although a safe period for this remains unclear.
• Employers should continue to ask for certification of illness from any worker who tries to convert holidays into sick leave and incorporate a standard reporting procedure into their holiday policies.

C-78/11
Issue: Holiday entitlement – sickness and absence holidays

A Spanish collective agreement expressly allowed workers to reschedule a planned period of paid annual holiday if it clashed with temporary absence resulting from pregnancy or childbirth and so on. There was no similar provision for general sickness. The matter of whether sick workers should have a similar right was referred to the Court of Justice of the European Union (CJEU).

The CJEU emphasised that the entitlement to annual leave is a crucial principle of EU law from which there can be no exceptions. It therefore held that a member state must not deprive a worker who becomes unfit for work during a period of paid annual leave from having that paid annual leave. It emphasised that the purpose of annual leave and sick leave are different and the sick employee should be entitled to rearrange the affected period of leave even if this means carrying it to the next leave year.

Implications for employers

• All workers who become ill during their holiday leave are (subject to exceptions below) allowed to take the holiday that they missed due to their illness at a different time.
• The earlier case of Pereda v Madrid Movilidad SA made it clear that employers must compensate for holiday rights which were eroded by sickness.
• This principle now applies whether the worker's illness begins before or during the holiday.
• Those on long term sick leave can carry holiday entitlement over leave years, rather than lose it.
• The Working Time Regulations 1998 should be interpreted in accordance with this decision.
• As far as public sector employees are concerned, they can claim directly against their employer because the public sector has to directly comply with EU law. Employees in the private sector have to bring a claim against the UK Government for breach of rights under the Working Time Directive.
• The UK Government is amending the Working Time Regulations 1998 and should take account of all the CJEU case law on sickness and annual leave anyway.
• It is likely that this principle enabling the holiday to be taken later on, only applies to the four weeks’ statutory annual leave deriving from EU law and not the additional 1.6 weeks in the Working Time Regulations. It does not apply to any contractual holidays over and above the statutory 5.6 weeks. The assumption is that the UK Government will extend the right in relation to the first four weeks of holiday entitlement to comply with EU law, but go no further.
• The four week limit also means that if a worker has six weeks paid holiday and is sick for two weeks, the employer need not carry the two weeks over because the worker still has the four week’s leave entitlement left.
• For part-time workers the four weeks holiday carry over is pro-rata.
• Employers should check their sick leave and holiday policies.
• Policies should state that if employees are sick during a period of holiday leave the employee should follow the normal sickness reporting requirements.
• Employees may be required to produce medical evidence to substantiate their assertion that they were ill on holiday.
• If a worker has no paid sick leave left and asks to use paid holiday to cover sickness absence what does an employer do as this may breach EU case law. A cautious employer might want such a worker to sign a compromise or settlement agreement waiving their rights. This would avoid the risk of the worker later trying to enforce their full holiday rights later, having said they would use them when sick.

Issue: Holiday entitlement – untaken leave

This German case is part of the ongoing sequence of cases dealing with long-term sick leave and the interrelationship with annual leave and holiday pay.

In Germany legislation allows for a carry-over period for untaken leave of nine months, so that public servants forfeit leave if it has not been taken nine months after the end of the leave year because of sickness. The case was brought by a fireman who had annual leave from 2007 to 2009 of 26 days in each year. From 2007 he was unfit for service on medical grounds and he retired at the end of August 2009. The fireman sought almost 17,000 euros as payment in lieu of the 86 days' annual leave that he had accumulated, but not taken. The German court referred the following matters to the Court of Justice of the European Union (CJEU) asking if the entitlement to take holiday in lieu conferred by the Working Time Directive (WTD) applies to:

• just the minimum annual leave of four weeks under the WTD, or
• any additional leave provided for by national law.

The CJEU ruled that:

• On termination of employment when it is no longer possible to take paid annual leave the WTD entitles workers to an allowance in lieu of annual leave.
• The fireman in this case was entitled to an allowance in lieu of the minimum four weeks' annual leave not taken.
• Where national law gives a public servant further paid leave in addition to the minimum four weeks' annual leave, the national legislation does not have to provide for an allowance in lieu if the public servant has been unable to use the additional entitlement because of illness.
• The carry-over period in this case of nine months (which is shorter than the reference period of one year) is not permitted under the WTD.

Implications for employers

• The UK Government are planning to amend the Working Time Regulations 1998 ) anyway and should take care to comply with this decision. Employers cannot ignore the holiday entitlement of a worker who is on sick leave. If the worker fails to request to carry forward their leave they will accrue statutory annual leave while off sick and this will automatically be carried forward to the next leave year.
• On termination of employment a worker must be paid an allowance in lieu of untaken statutory annual leave entitlement, but this requirement only applies to the minimum four weeks' annual leave. A worker who is off sick during an entire holiday year does not have to make a request to carry forward accrued leave before that leave year has expired.
• The CJEU have previously confirmed that national law can treat sick workers differently with regard to access to extra paid leave entitlement, so long as all workers are entitled to at least the statutory minimum four weeks' leave (Dominguez v Centre informatique du Centre Ouest Atlantique and another [2012] IRLR 321, ECJ).
• It is for member states to decide whether to provide workers with additional holiday rights and whether to provide for an allowance in lieu of any such rights.
• In order to avoid a long carry-over for workers on long term sick leave, employers may want to alert workers they can take their holiday during sick leave instead. Although workers cannot be forced to do so, some may opt to do so especially if they are on reduced pay. This may limit the costs to the employer.
• The UK grants 1.6 weeks’ additional leave over the four weeks EU amount. The Government can therefore amend the Working Time regulations in light of then CJEU’s decisions to deal with sick workers who are unable to take their leave entitlement. If it wishes, the UK government can deal with compensation for the 1.6 weeks extra leave differently, perhaps not providing a right to carry over untaken leave over and above the four weeks.
• The UK Government and UK employers should not force workers to forfeit leave over a period as short as nine months after the end of the holiday year.
• Carry-over periods appear to be permissible but it is not clear how long they should be.
• Carry-over periods are not indefinite but should be substantially longer than the reference period in which that entitlement accrued which is often a year so. A 12 month carry-over period will also not be sufficient. However in KHS AG v Schulte [2012] IRLR 156, ECJ a carry-over period of 15 months was sufficient.
• The Court of Appeal’s decision in NHS Leeds v Larner also expressly decided that once an worker has returned to work after illness they need to request to take carried-over leave in the usual way.

​​Case C-282/10
Issue: Holiday entitlement – conditions

Some aspects of EU law have direct effect. This means that those EU provisions are enforceable directly in the UK or any other member state regardless of whether that country has introduced specific national laws to implement the EU provisions.

The Court of Appeal in East Riding of Yorkshire Council v Gibson [2000] IRLR 598, CA previously said that Article 7 of the Working Time Directive (which gives four weeks annual leave) was not precise enough to have direct effect. However in this case it was decided that Article 7 of the Working Time Directive does have direct effect.

Implications for employers

• This is an important decision as public sector workers (who work for ‘emanations of the state’) can take direct advantage of the Working Time Directive as well as the Working Time Regulations 1998 (WTR).
• Such workers can therefore carry forward their annual leave from one year to the next if they have been unable to take their full entitlement during the leave year because of sickness. (Stringer v HM Revenue & Customs; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214, ECJ).
• Employers in the private sector with workers who have been unable to take their full entitlement during the leave year because of sickness are still caught in the confusion between the UK WTR and the Directive.
• Annual leave under the UK WTR is not usually carried forward from one year to the next.
• There are also other unresolved issues for employers surrounding annual leave rights in cases involving sickness absence. As well as issues about whether any right to carry over leave applies to the additional 1.6 weeks’ leave given by the WTR over and above the four weeks minimum leave required by the Working Time Directive.
• Other issues for employers include, following KHS AG v Schulte (unreported, C 214/10 22 November 2011, ECJ) whether leave which is carried over can be treated as having expired if it remains untaken for too long and if a worker must specifically ask to carry forward leave before the end of the leave year in which it accrued. (The cases of NHS Leeds v Larner [2011] IRLR894, EAT and Fraser v Southwest London St. George’s Mental Health Trust (unreported, UKEAT/0456/10 3 November 2011, EAT give some guidance on this issue. See the implications for employers in these cases). The Government intends amending the UK WTR so new regulations will specify when leave is carried forward and this should resolve these outstanding issues.

​​[2011] UKSC 57
Issue: Annual leave – offshore workers

The Supreme Court considered the meaning of ‘rest periods’ in the Working Time Regulations 1998. The workers in the oil and gas industry had a shift pattern of two weeks working offshore followed by a two weeks off on shore known as a field break. The workers said that their annual leave should encompass leave from the offshore work, while the employer said it was entitled to insist that annual leave was taken during the periods when the workers were onshore, irrespective of whether the workers were in fact working during that period. The Supreme Court agreed with the employer and said that it was entitled to insist that the workers took their annual leave during the periods when they were onshore.

Implications for employers

• The facts of this case do not apply to too many employers in the UK.
• However the principle of if employees can be forced to take annual leave even if they would not have been working has wider implications. For example, a business that has a summer or Christmas closure period can insist that workers take that time out of their annual leave.

Case C-214/10​
Issue: Accruing holiday while on sick leave

In this German case Mr Schulte had been on long-term sick leave for six years. On the termination of his employment he brought a claim for payment in lieu of annual leave which he had accrued whilst off sick. The German court referred the case to the Court of Justice of the European Union (CJEC) (formerly ECJ) because it was unsure whether under the Working Time Directive holiday rights can expire when a worker is on long-term sick leave.

The Advocate General handed down an opinion that the Directive does not require the unlimited accumulation of annual leave by workers who are on long-term sick leave. An acceptable limit could be set by Member States.

The CJEC took an even broader view than the Advocate General and said provisions about carry over of leave are a matter for each Member State as long as workers get breaks from work. A worker who loses their right to leave due to illness should not be denied the opportunity to take their leave. However, indefinite accumulation of entitlement to leave is not required.

'Otherwise, a worker, ......who is unfit for work for several consecutive reference periods, would be entitled to accumulate, without any limit, all the entitlements to paid annual leave that are acquired during his absence from work. A right to such unlimited accumulation of entitlements to paid annual leave, acquired during such a period of unfitness for work, would no longer reflect the actual purpose of the right to paid annual leave...'

It appears that the expiry of annual leave entitlement 15 months after the end of the relevant leave year provided by German law would be sufficient, or to be on the safe side 18 months would be preferable.

Implications for employers

• Employers should think about their current policies and procedures in light of the changes to expiry of accrued sick leave.
• This is an important case which has implications for employers in the UK, although the recent case of Fraser v Southwest London St George’s Mental Health Trust gives further guidance.
• Previously the linked cases of Stringer and Schultz-Hoff said that paid annual leave under the Working Time Regulations 1998 continues to accrue during sick leave and that workers can opt to take that leave when off sick. This still appears to be correct.
• In addition, under EU law workers who go on sick leave during annual leave can reschedule their holidays, even if that means allowing leave to be carried forward into a subsequent holiday year.
• However the holiday entitlement accrued by workers on long-term sick leave can expire after a set period following the end of the holiday year to which the leave relates.
• The purpose of leave is to take a rest from work and that cannot be achieved if the leave is not taken for a long time later, so employers who allow a time-limit of say eighteen months for accumulated entitlements should satisfy the law.
• It really falls to the UK to decide how long the cut of period of time should be, but by way of guidance it is clear that an eighteen months is sufficient, but six months is not. To be safe employers should allow employees on sick leave to accumulate holiday entitlements for at least eighteen months.
• It appears that a carry over period must be substantially longer than the reference period for the leave year in respect of which it was granted, so a carry over period of six months may not compatible with the WTD after a long period of sick leave.
• The Government is currently consulting on the changes to the Working Time Regulations 1998 to ensure that UK legislation is consistent with the Working Time Directive. It is likely that employees will be allowed to carry over at least the basic four week entitlement into the following leave year.

UKEAT/0456/10
Issue: Employee on sick leave

The claimant was on long term sick leave from November 2005 following an accident at work. Her entitlement to sick pay expired in August 2006. Some two years later she was certified fit for a limited return to work and the Trust resumed paying her in 2008. However, no work was found for her and she was subsequently dismissed later that year. She received pay in lieu of untaken leave which accrued in the final leave year beginning in April 2008, but not in respect of the two previous leave years. She claimed, among other things, that she was entitled to payment in respect of four weeks’ annual leave for each of 2006 and 2007.

The Employment Appeal Tribunal (EAT) confirmed that entitlement to holiday pay under the Working Time Regulations 1998 (WTR) depended on her having given proper notice of her intention to take annual leave. As she had not done so, the right to leave, or to any payment in lieu, was lost. The EAT also confirmed that there is no duty on an employer to advise its employees of their rights as a matter of general law.

Implications for employers

• Employers should think about their current sickness and holiday policies and procedures in light of the changes to expiry of accrued sick leave.
• All workers have the basic right to 5.6 weeks paid holiday in each leave year.
• Under the WTR, statutory annual leave must be taken in the year in which it is due.
• It is not normally permissible to carry over leave from one year to the next.
• Annual leave cannot usually be replaced by a payment in lieu, except on termination of employment.
• Regulation 15 of the WTR provides that employees must formally request holiday before they are entitled to take it and to be paid for it.
• Problems have arisen where the worker is on long term sick leave. An ECJ decision Perada v Madrid Movilidad SA ruled that workers who are unwilling to take paid holiday during sick leave will be able to carry it over to the next leave year. However the WTR do not expressly allow for such a carry over, leading to confusion about the position in the UK.
• In the well known case of Stringer and Schultz-Hoff, the ECJ decided that if a worker has not had the opportunity to exercise the right to annual leave as a result of sickness, they should be entitled to carry over the unused leave to a subsequent year.
• In order to trigger the right to take leave, employees are required to give notice under the WTR in the same way as an employee who is not on sick leave and wishes to take holiday. Workers who not do this may lose their right to leave.
• There is still an obligation to make a payment in lieu of accrued, but untaken holiday on termination of employment for the leave year in which the employment is terminated, whether or not the employee has made a request for leave.
• Workers who are on long term sick leave should not present employers with a potentially expensive claim for unpaid holiday pay, where they have not made any attempt to take the leave or to be paid for such leave when it falls due.
• The case KHS AG v Schulte also suggests that, after at least 15 months and more likely, 18 months of sickness absence, any accrued or carried over annual leave must be taken (following a request) or will be lost.
• The purpose of leave is to take a rest from work and that cannot be achieved if the leave is not taken for a long time later, so employers who allow a time-limit of say eighteen months for accumulated entitlements should satisfy the law.
• It falls to the UK to decide how long the cut of period of time should be, but by way of guidance it is clear that eighteen months is sufficient, but six months is not. To be safe employers should allow employees on sick leave to accumulate holiday entitlements for at least eighteen months.
• Taking into account this case and KHS AG v Schulte, it appears that fit workers still must request annual leave within the leave year in which it falls due, or lose the entitlement to statutory annual leave unless there is a contractual provision or specific agreement allowing them to carry over a proportion of their contractual annual leave.
• Where sick workers make a request for annual leave whilst on sick leave, employers should either allow them to take annual leave when off sick (which workers who have finished their entitlement to contractual sick pay may choose to do), or employers should allow them to take the leave on their return to work, even if this means it must be taken in a subsequent leave year.
• Employees with many years of sickness absence may have a large accrual of holiday entitlement when they return to work, or a large payment in lieu of notice when their employment ended.
• The Government is planning to change the WTR to be consistent with EU caselaw and the Working Time Directive, so that employees should be allowed to carry the basic four week entitlement over into the following leave year.
• The Government is also considering allowing employers to prevent employees carrying over the 1.6 weeks additional leave over and above the basic EU statutory holiday entitlement. (This is the difference between the initial four weeks statutory holiday entitlement and the current 5.8 weeks UK minimum leave).

​​(ET/1503084/10 and 1503085/10 2011, ET)
Issue: sickness absence and annual leave

This is another case about sickness absence and annual leave. The law in this area is contradictory.

In this case a traffic controller and a port controller both with long service were entitled to contractual paid holiday entitlement of 33 days per year. There was no contractual entitlement to carry over unused holiday from one leave year to the next. One employee was off sick for over eight months and the other for over four months. Neither employee took or asked to take annual leave while off sick. The employees stated that:

• they had accrued annual leave while off sick,
• this accrued leave was 27 days for one employee and 12 days for the other,
• they wished to take the vast majority of that accrued leave on specified dates in 2010, and
• in respect of the leave they did not wish to take in 2010, the employer should agree to them carrying over that leave to the next leave year.

The employer refused the requests for leave. The employees then brought employment tribunal (ET) proceedings under the Working Time Regulations 1998 (WTR) for refusal to permit them to exercise their rights to accrue annual leave while off sick and carry it over, where required, to the following leave year.

The ET held that the WTR, whilst incompatible with the Working Time Directive (WTD), can be interpreted in a consistent way by using the principle set out in EBR Attridge Law LLP and another v Coleman (No.2) [2010] IRLR 10 EAT.

In summary the ET therefore considered that employees should carry over the annual leave accrued during their sickness absences to the following leave years. The employees therefore won.

Implications for employers

• Employers should be aware that the Working Time Regulations 1998 (WTR), as currently drafted, are not compliant with the ECJ decisions on the application of the WTD.
• Until the Government amends the Regulations (which it is going to do), employers should be aware that workers, especially in the public sector may claim their rights under the WTD.
• The law in this area is therefore unsettled in that the UK position under the WTR has to be compared to the ECJ decisions.
• The WTR do not generally permit the carry over of statutory annual leave. However, the ECJ has held that, where workers are prohibited from taking annual leave due to sickness, they must be allowed to take that leave at another time and, if necessary, during the following leave year.
• All workers have a right to accrue 5.6 weeks’ annual leave. This also accrues while they are on sick leave and workers cannot be required to take annual leave at the same time as sick leave.
• Workers must be allowed to take accrued leave within the current leave year so far as they are able to do so.
• In so far as a worker is not able to take such leave within the current leave year for reasons relating to sickness absence (or because the employer for good business reasons requires it to be taken at a later date), it can be carried over to the next leave year.
• The additional 1.6 weeks’ leave provided under the WTR should be treated in the same way as the basic four weeks’ EU entitlement so this accrues and can be carried over as well.
• It appears that employers should allow the right to carry forward untaken, paid annual leave accrued on sick leave to accumulate and carry over from year to year indefinitely. (However the ET commented that it did not understand the ECJ cases that suggest this. By contrast, it said that a point must come where the accrual of annual leave no longer improves and protects the health and safety of workers by providing them with minimum periods of rest and adequate breaks).

[2010] IRLR 288, EAT
Issue: Holiday entitlement - notice provisions for requesting holiday

An employee worked on a ‘zero hours’ contract. He had nine days leave outstanding at the beginning of March which had to be taken by 31 March which was the end of his employer’s leave year. He had no work scheduled for March and asked to take the nine days leave. The employer refused, saying that the employee had not given four weeks’ notice required in his contract. The contract also stated that late leave applications ‘would be considered on their merits and subject to staffing arrangements’. The employee resigned and claimed unfair constructive dismissal and the nine days holiday pay.

The EAT held, allowing an appeal, that if workers do not take their leave by the end of a leave year, they can lose it, provided that the employer has not operated the notice periods in an unreasonable way so as to deny leave. However, the appeal was allowed in this case because the employment tribunal had not considered whether the request for leave had been refused in accordance with the contractual provisions – the merits of the request and staffing arrangements.

Implications for employers

• Employers must give employees 5.6 weeks’ holiday under the Working Time Regulations 1998.
• There is still no general statutory right to carry over holiday entitlement from one holiday year on to the next.
• Employers do not have to ensure all employees take their holiday entitlement in the current holiday year.
• Employers can use contractually agreed provisions relating to the notice required for holiday (even if this is more notice than the statutory notification period).
• However as a matter of best practice employers should not impose lengthy notice period relating to taking holiday unless there is good reason to do so.
• Employers should also avoid operating their holiday notice provisions in an unreasonable, unjustified and random way.

​​(unreported, ET/1809311/09, ET)
Issue: Carrying over holiday

An employee had booked four weeks holiday which was agreed by his employer. The worker broke his ankle and had to take three months off work. He asked for the four weeks holiday to be rescheduled, but as this would fall into the next leave year, the employer refused. The employee brought a claim under the Working Time Regulations 1998 (WTR).

The employment tribunal allowing the claim, held that the Working Time Regulations (WTR) can be interpreted in accordance with the European Court of Justice (ECJ) decision Pereda v Madrid Movilidad SA and therefore the refusal to carry over the leave was a breach of the WTR. Stringer v HMRC, another ECJ decision, was also taken into consideration in the decision. The decision is not binding on other tribunals.

Implications for employers

• To be safe and as a matter of good practice, employers should allow employees to accrue and take holiday during sick leave and allow holiday leave to be carried forward if not taken due to illness. As in the Pereda case, employers should allow those formerly sick employees to decide when to take the accrued holiday and to carry it over not only to the next holiday year, but possibly to the year beyond.
• Employers can still observe the strict legal position that they are not obliged to permit leave to be carried over to the next year, but this may be vulnerable to challenge especially in cases of sickness. Employers should not adopt a 'use it or lose it' approach to holiday accrued during sick leave.
• Employers should make sure that holiday and sickness policies are amended to clarify the employer's approach to accruing and carrying over holiday in the staff handbook etc.
• Precedent employment contracts may also need to include a clause that deals with sickness during holiday.
• Employers should expect future changes to the law to ensure the WTR are compatible with the current ECJ and domestic case law.

Stringer and others v HMRC [2009] ICR 985, HL
Issue: Working time

The Stringer case is a complex piece of litigation which has been to the Court of Appeal, House of Lords and ECJ. Following guidance from the ECJ the House of Lords eventually decided that workers absent from work on long term sickness absence since the start of the leave year, who had exhausted both their contractual and statutory sick pay, did accrue statutory holiday and should be allowed to take that holiday. The House of Lords also ruled that claims in relation to statutory holiday pay can be brought as a claim for unlawful deductions from wages under the Employment Rights Act 1996 (ERA). Annoyingly some other issues did not form part of the House of Lords decision such as:

• As the WTR do not provide for holiday to be carried over if a worker on sick leave is refused holiday, can that holiday entitlement be carried over and be taken in a subsequent holiday year?
• Can such a worker only be paid in lieu of the holiday on termination?
• As some issues remain unresolved we attempt to set out below practical steps employers can take, bearing in mind that the law is still grey in some areas. In Stringer the ECJ gave some guidance saying that under the Directive:
  • Workers on sick leave can accrue the four weeks’ paid holiday while they are on long-term sick leave (This does not apply to all of the 28 days applicable under the UK legislation).
  • Workers must be allowed to take this accrued holiday on their return to work.
  • Any national rule which prevents workers actually taking paid leave during sick leave is permissible, as long as the worker then has the right to take their leave at another time (that is when they return). Similarly a national rule which allows workers to take paid annual leave during sick leave is also allowed.
  • It is not lawful to provide that the right to annual leave is lost at the end of a leave year where the worker has been on sick leave.
  • Where the employment relationship is terminated, workers are entitled to take the leave or to any pay in lieu of the holiday which was not taken due to illness. This is the case even where the worker was on sick leave for all or part of the leave year in question.
  • Accrued statutory holiday not taken due to sickness can be taken at a later date - even if it is during the next leave year.

  Implications for employers

  • Employers must provide all workers including those on long term sick leave with at least the four weeks EU annual leave in the usual way. (Of course in the UK leave entitlement is more than four weeks i.e.28 days but the Stringer decision does not apply to this holiday just the four week part of it.)
  • The UK's current Working Time Regulations (WTR) employers can apparently insist that leave must be taken in the year in which it is due; although this seems inconsistent with the ECJ's judgement in Stringer and so new legislation may be needed.
  • Workers may have a right to carry leave over into the next year if there is a contractual right to do so, or if or the employer has refused permission for the employee to take the leave.
  • On termination but probably not during employment, workers have the right to be paid in respect of accrued but untaken holiday entitlement.
  • Employers may incur increased costs in relation to workers who return (or leave) following long-term sick leave.
  • Employers should check private health insurance schemes and may be better off not providing these and dismissing the long-term sick earlier rather than later.
  • Workers who are absent for years on permanent health insurance could accumulate a considerable right to annual leave (and pay in lieu). It is not certain if that would be payable by the insurer, but insurers may attempt to deny cover.
  • At the very least, employers should focus on managing sickness absence to ensure the employees return to work as soon as possible.
  • If the employment relationship ends, workers are entitled to a payment in lieu in respect of untaken leave due to sickness (even if the worker is absent for all or part of the leave year in question).
  • In the UK it appears that accrued statutory holiday not taken due to sickness does not have to be carried over and taken during the next leave year if the worker returns to work in the next leave year, however as this is unlikely to affect many employees and the ECJ have expressed the view that they should be allowed to take it, employers may wish to consider allowing those who are affected to carry the leave over.
  • Employers should always remain wary of denying holiday pay to workers who have been absent for part of the year.
  • As the EU cases refer to the four weeks holiday under the EU Working Time Directive, employers must decide how to deal with the additional holiday conferred by the UK Working Time Regulations (and/or any contractual holiday). This must be dealt with in sickness, or absence policies.
  • The ECJ judgment does not entitle workers to accrue the additional holiday during sickness absence, although employers may wish to allow this. If they do not, disability discrimination issues may arise and treating the extra holiday entitlement differently may be difficult for personnel departments to administer. Alternatively employers may limit any holiday which accrues during sick leave to a maximum of four weeks holiday as long as the relevant policy says so.
  • Employers must review current holiday policies to decide how they wish to deal with untaken holiday at the end of the leave year, at least as far as those on sick leave are concerned.
  • The cases do not deal directly with other areas of the law and it is unlikely to further affect other common long term absences such as ordinary and additional maternity leave. It is already well established that employees accrue annual leave during the whole maternity leave so employers usually allow the statutory annual leave to be taken at the end of maternity leave or to make a payment in lieu.
  • Perhaps subsequent cases may address similar issues concerning paid holiday during, for example, a long term sabbatical. A prudent employer may require workers to take their annual leave during a sabbatical.
  • As the law is now going through a process of change employers must be very careful with employees who are on long-term sick leave as they are also likely to be protected by the Disability Discrimination Act 1995.
  • Any unpaid pay in lieu of annual leave can be a "deduction from wages" and it is therefore possible for workers to claim in respect of a series of deductions for up to six years.