Inland Revenue v Ainsworth
Right to paid annual leave when on long-term sick leave
PPPP In 2002, the EAT made two important decisions on the right to annual leave. In Kigass Aero Components Limited v Brown it decided that a worker on long-term sick leave can claim four weeks’ holiday pay under the Working Time Regulations (WTR), even where they have been absent from work throughout the leave year in question and exhausted their entitlement to receive contractual or statutory sick pay.
In List Design Group Limited v Douglas, the EAT decided there was a right to receive a payment in lieu of annual leave as this fell within the meaning of ‘wages’ under section 13 of the Employment Rights Act (the right to claim for unlawful deductions from wages).
The EAT’s decision in List Design had practical significance because the time limit for a claim under the WTR is three months from the date on which it is alleged that the payment should have been made – whereas, the time limit for bringing a claim for an unlawful deduction, which is part of a series of deductions, is three months from the last unlawful deduction in the series. The Court of Appeal has now decided that both EAT decisions were wrong.
The court decided that ‘leave’ under the WTR means the release of the worker from some obligation, and so it cannot be taken while the worker is on sick leave. Also, if the worker is on long-term sick leave and is not entitled to any annual leave for that leave year, then they were not entitled to claim payment in lieu of that holiday on termination. And, the WTR provides the sole remedy for enforcing working time rights.
This judgment is good news for employers, up to a point. It is clear that where a worker is absent on sick leave and unable to work at all in a particular leave year, there is no entitlement to holiday pay in that year.
It is also clear that a worker who has been dismissed having been on sick leave since the start of the annual leave year has no entitlement to leave and therefore cannot claim payment in lieu of untaken holiday on termination.
However, it is not clear what happens when a worker is on sick leave for part of the leave year – the Court of Appeal did not deal with that, and there is no provision in the WTR for a pro rata reduction of the employee’s entitlement. The claimants have applied for leave to appeal to the House of Lords so that issue may be addressed there.
What you should do
- Where the employee has not worked since the beginning of the leave year and has been dismissed, or has not yet returned to work, you may be able to avoid giving holiday pay. First, however, you must check this does not breach the worker’s contract
- If the worker has been absent for part of the leave year, do not assume annual leave ceases to accrue if a worker is absent. As the law currently stands, avoiding giving holiday pay in that situation carries a risk.