Case of the month: Schultz-Hoff v Deutsche Rentenversicherung Bund Stringer and others v HM Revenue & Customs

Under European law, all workers are entitled to a minimum of four weeks’ paid annual leave – equivalent to 20 days for full-timers.

 UK workers are entitled to an additional 0.8 weeks on top of this, rising to 1.6 weeks extra in April 2009, and some have additional contractual rights to holiday, but this ruling only relates to the statutory minimum four week entitlement.

The UK Courts and the European Court of Justice (ECJ) have been asked to decide whether the right to take this minimum period of leave applies to workers on long-term sick leave, whether the paid holiday can be taken during the sick leave and whether employers have to pay in lieu of holiday that has accrued during sick leave when employment ends.

The Court of Appeal previously decided that a worker cannot take holiday during sick leave and a worker who is off sick for the whole of the holiday year will lose their right to any paid holiday. This decision was appealed to the House of Lords, which referred the case to Europe. The ECJ has now decided that:

Workers accrue the statutory minimum four weeks’ holiday during any period of long-term sick leave (four weeks being the minimum entitlement under the working time directive)

Workers must be allowed to take this holiday on return to work, and, if that is not possible (e.g. because of a carry-over restriction), must be able to take the holiday during sick leave

On termination of employment, employers must pay in lieu of holiday that has accrued during a period of sick leave.

This case will now return to the House of Lords to interpret the ruling and confirm what it means for UK employers.  The UK courts are likely to face some difficulties in applying this decision, in that:

The UK legislation on working time, the Working Time Regulations 1998 (WTR), does not allow the four-week statutory minimum period of holiday to be carried over to another holiday year. The House of Lords will have to decide whether UK law needs to be amended to reflect this decision

It is unclear what this ruling means for the additional allowance provided for UK workers under the WTR

If workers are allowed to take holiday while on sick leave, what is the position on pay if the leave is taken during a period of paid sick leave?

Can employers require employees to take this holiday during a period of paid sick leave and if so, will this extinguish any liability?

This decision is likely to increase the cost of keeping employees on long-term sick leave, as well as termination payments associated with incapacity dismissals.

Employees receiving permanent health insurance benefits present a particular difficulty (and expense) as many PHI schemes prevent employers from dismissing an employee who is receiving PHI benefits.

Depending on how the House of Lords interprets this decision, this could give rise to many years’ worth of paid holiday entitlement.

Key points

  • Workers accrue statutory minimum holiday during any periods of long-term sick leave
  • Workers must be allowed to take this statutory holiday
  • On termination of employment, employers must pay in lieu of statutory holiday that has accrued during a period of sick leave

What you should do

  • Review sick pay policies and procedures
  • Review arrangements with PHI providers
  • Manage sickness absence more closely to do whatever possible to reduce periods of sickness absence
  • Be aware that this decision does not apply to contractual holiday in excess of the statutory minimum
  • Be aware that claims brought now by employees for holiday entitlement during sick leave are likely to be put on hold pending the House of Lords’ decision. This does not mean that employers are not liable to provide this holiday entitlement in the meantime, but a risk assessment should be made when such a request is put in to decide how best to respond to it.

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