Dilemma: Health insurance, holiday accrual and sick leave

We give permanent health insurance (PHI) cover to many senior staff. Where does the recent ruling on holiday accrual during sickness absence place us in the event of staff covered being on long-term sick leave?

The recent European Court of Justice (ECJ) ruling in the long-running case of Stringer v HMRC means that statutory holiday entitlement under the Working Time Regulations (WTR) will continue to accrue while they are on long-term sick leave. As a result, staff will be entitled to carry over any unused statutory holiday (which is now 28 days) to the next leave year, where they will continue to accrue until the employee returns to work, or receives a payment in lieu of any unused statutory holiday entitlement on the termination of their employment. 

Although the ECJ decision has been long awaited, it does not provide guidance on how it should be applied in practice. In fact, the decision appears to be contrary to the WTR which says that statutory annual leave must generally be used within the leave year and cannot be carried over to the next leave year. Employers usually reflect this practice when dealing with any additional contractual leave, and the ECJ ruling still permits them to do so. However, you will now need to make sure that your annual leave policies and terms and conditions allow statutory annual leave to continue to accrue during periods of sick leave, and a payment to be made in respect of accrued leave on termination of employment. You will also need to assess whether employees who have been on sick leave for long periods have now accrued substantial entitlements and, if so, whether your insurer is liable to reimburse them.

The ruling is not clear as to how PHI policies and sick leave entitlements should now be dealt with. The WTR state that employers can offset any contractual payments made to staff in respect of a period of leave against the statutory right to payment to ensure they are essentially not being paid twice. But it is not clear whether amounts received in contractual sick leave and PHI policies can be offset against payments for accrued, but untaken, statutory leave. The decision has been sent back to the House of Lords. Hopefully, it will address these issues.

Jennifer Currie, senior solicitor, McGrigors

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