Employees are entitled to accrue holiday pay while on sick leave and can carry that leave over into another year if they are too ill to take it, the European Court of Justice (ECJ) has ruled.
Individuals may also be able to claim for annual leave payments dating back more than 10 years, to when the Working Time Directive was first introduced, if their sickness absence had meant they were unable to take holiday, and hadn't already claimed benefits from their employer.
The case will now return to the House of Lords in the UK for a final hearing, expected to take place later this year.
Business groups warned the ruling was bad news for employers. Katja Hall, director of HR policy at the CBI, said: "This is a real blow to firms trying to keep jobs alive during the recession. Businesses themselves also suffer when staff take sick leave, and we had hoped that a compromise could have been achieved over unused holiday time.
"Instead, at a time when the economy is struggling, this judgment will ensure that staff are away from the workplace for longer. And it will create a headache for HR departments, who will have to review their policies and contracts."
|Philip Titchmarsh, partner at law firm Pinsent Masons, says the real impact of today's ECJ decision is on the cost of managing long term sickness cases|
Tim Marshall, partner and UK head of employment at law firm DLA Piper, added: "The ruling will increase the complexity of managing absence from work by allowing workers to take accrued holiday when they return to work, even after many months or more than a year off. Besides the financial burden, this potentially could make integrating an employee back to work and balancing workloads extremely difficult," he said.
The ECJ also ruled that employees who are laid off during a period of sick leave will be entitled to payment in lieu of the annual leave they have accrued.
Last year, the advocate-general ruled that workers must not take annual leave while off sick.