Employees have to earn their holiday entitlement

As the temperature rises and summer clothes are rescued from winter storage, thoughts turn to holidays. Implementing a statutory right to four weeks’ paid holiday should arguably be relatively straightforward. However, in practice, the operation of the Working Time Regulations 1998 has caused some difficulties, most recently in defining what is meant by ‘holiday’ for those on long-term sickness absence.

Sir Cliff Richard recognised that a holiday meant “no more worries for a week or two”, while Madonna viewed a holiday as a “time to celebrate”.

But this is hardly likely to apply to people on long-term sick leave.

When the Employment Appeal Tribunal (EAT) in Kigass Aero Components Ltd v Brown considered the regulations, the EAT held that the right to accrue paid holiday was not dependent on having attended work or performed any services for the employer during the leave year. Workers were entitled to accrue and take paid holiday while on long-term sick leave – a significant benefit to individuals who had exhausted sick pay entitlement and could claim an additional four weeks’ paid leave.

The definition of leave

In overturning the Kigass decision, the Court of Appeal held in Ainsworth v Inland Revenue that ‘leave’, for the purposes of the regulations, requires a release from what would otherwise be an obligation on the worker. Unless an individual is working during the leave year, they are not entitled to accrue or claim paid leave while off work on long-term sickness absence.

The Court of Appeal’s key reasoning was two-fold: Focusing on the language of the regulations and its context, the court held that the natural meaning of leave connotes a release from what would otherwise be an obligation. In other words, a worker should be providing services to their employer to benefit from paid holiday.

The primary purpose of the regulations is to prescribe minimum health and safety standards for working time.

The court accepted that a worker who is not required to work at the time of a request for paid holiday stands to gain no benefit to his health by taking leave; the only benefit would be a financial windfall for individuals on long-term sickness absence.

The regulations permit a payment in lieu of untaken holiday on termination of employment. In Ainsworth the court decided that where an individual’s employment was terminated following a period of sickness absence, they could not claim a payment for holiday pay in respect of the period of sickness absence.

The court also made clear that any claim in respect of a failure to grant leave, or make a payment in respect of leave, must be pursued under the regulations, and not as an unlawful deduction of wages. So a claim for outstanding holiday pay must be made within three months of the refusal to grant paid holiday, and cannot be ex-tended to include previous years.

Caution pays

Does this mean that employers can simply refuse to allow individuals who are on sick leave to book holiday or to pay in lieu of holiday on termination? Not without some risk.

Ainsworth only dealt with specific circumstances where individuals had been absent for the entire leave year, and not where the absence was only for part of the leave year. The decision was linked to the language in the regulations, which does not allow for holiday entitlement to be reduced on a pro-rata basis according to periods of absence.

Therefore, employers should take a cautious approach in all cases other than where an individual has exhausted all entitlement to sick pay.

Tips on holiday and sickness

  • Don’t forget that the principal purpose of the Working Time Regulations is to protect health and safety

  • Do consider limiting the right to accrue enhanced contractual leave during sickness absence

  • Don’t decline genuine holiday requests without careful consideration

  • Do consider the impact on other types of long-term absence (such as unpaid sabbaticals)

  • Don’t forget that individuals whose employment is terminated may, in some circumstances, be entitled to receive paid notice on termination

  • Do ensure that managers are updated as to the clarification of the law, and watch this space for the result of any appeal to the House of Lords

Penny Markham ia employment lawyer, Allen &Overy LLP

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