Holiday accrual during sickness: head to head

Q Is the ECJ ruling likely to be financially ruinous?

Corin Taylor, senior policy adviser, Institute of Directors

We are in the middle of a recession. Businesses are struggling to get by and are already having to lay people off, as they don’t have the cash to keep people hired. The ECJ decision is just going to add to the costs of employing people and will, therefore, mean more jobs are lost at the very worst time for the economy.

Paul Sellers, working time policy adviser, TUC

The potential costs have been vastly overstated. The number of people who are sick over the period of the holiday year and still have some holiday left is not going to be great. There will be some cases where employers have to find extra holiday pay for people who have been sick, but it is not going to be a huge amount of cost in general.

In most cases, the employer will terminate a contract short of the year. There is a strong tendency to inflate the impact, but while it will cost some employers more, it won’t be a huge amount.

Q Does it have any wider implications?

Taylor When you add it onto the other employment measures that are coming on stream this year, the costs to businesses mount. We have already got time to train, business rates supplements, an equality Bill and rights to request flexible working which are estimated by the government’s own regulatory impact assessments to be costing businesses about £1bn a year.

When we think about the future, there are a number of dynamic businesses out there that are vital to economic recovery and it just seems senseless to saddle them with extra costs at this time.

Sellers To our mind it has come down in the right direction. People with long-term health problems have many things to worry about. One of them should not be that they are treated fairly at work and paid what they are due, so giving them some peace of mind is a good thing from the staff side.

Employers will also benefit from now knowing what they should do – even if they complain about being told what to do sometimes. Clarity is far better than having tribunal cases rumble on for years.

Q What is the short-term impact likely to be?

Taylor In the short term, having expensive new commitments is going to have a big impact. These things are much easier to manage when company profits are up and economic times are good. It is when times are difficult that regulations really bite. If we really want to get out of this recession and limit the number of people who lose their jobs, the government needs to think again about introducing some of these regulations or at the very least delaying them.

Sellers It is actually good personnel practice, as there are hidden costs to not doing this. If you are seen to treat people rather unfairly when they are ill by taking their holidays away or not paying their contractual holiday, it has a big effect on the motivation of the workforce. If you have a Scrooge tendency then there’s a price to be paid for that.

Q Will it radically change the way that firms operate?

Taylor It depends on the nature of the business as some will naturally be better placed than others. But for many it represents yet another HR hassle and, in addition to the other regulations, is likely to lead to bigger HR departments, which is a fixed cost. That will probably be the biggest impact for most companies as there will be a lot that won’t have employees making use of the new regulations. Yet even these will have to take account of it when they write contracts and so on. So in that sense it will be an increased burden on them.

Sellers I don’t think this is fantastically difficult as, in most cases, this is what people do anyway. Personnel managers and employers in general should be aware of this judgement and need to think whether they have had cases recently or ongoing cases that this might affect. But I don’t think there will be any great difficulty in managing the new rules.

Q Is it likely to have a lasting effect?

Taylor The fact that some companies are doing this already is just good market practice, but that doesn’t necessarily mean you have to regulate it – as the simple fact is you are going to have companies where it doesn’t make good business sense to do this. So I think it will have disproportionate effects: on some companies it won’t make much difference but on some companies it will. It’s like flexible working: those employers that see the need are already providing it. So why is there a need for a blanket requirement?

Sellers Good employers with good sickness policies will only incur a small amount of expense and I don’t think it will involve major contractual changes for everyone because of the issue of motivation. I am sure some employers will get really tight on this and let people go who have been hanging on for years. But that will really be a small number of people. On sickness policy there is generally a point where the employer comes to a crunch because there is sadly no prognosis that somebody is going to get better. Employers will initially huff and puff and cry wolf about the extra costs but when the jury comes in they’ll find the cost is actually rather small and just absorb things as they happen.


Deborah Hely, employment partner, Beachcroft

Employer policies on accruing and taking holiday will need to be changed to allow for carry-over of statutory holiday where a worker is unable to take leave due to long-term sickness. This is likely to lead to significantly increased costs for employers, who will have to provide holiday for those employees returning from long-term sick leave, and payment in lieu of holiday accrued over a number of years on termination of employment. All of this may influence employers to try to terminate a worker’s employment at an earlier stage. However, employers must be careful to follow the correct procedure otherwise they may be faced with claims for unfair dismissal, disability discrimination and for loss of PHI benefit.

Gagandeep Prasad, solicitor, Charles Russell

We have yet to see what approach the House of Lords will adopt as it depends on whether it considers that it is possible to interpret the Working Time Regulations in accordance with the ECJ judgement, or whether the Lords decide the regulations are incompatible with EU law and the government needs to amend them. In the meantime, private sector employees should continue as before and consider people who are on long-term sick leave as entitled to accrue, but not take holiday while they are absent, and are not permitted to carry over holiday, or be paid in lieu on termination of employment, if they are absent for an entire holiday year.

Jonathan Maude, employment partner, Hogan & Hartson

The ruling is effectively saying that statutory holiday entitlement continues to accrue during periods of long-term sick leave. Obviously, the effect this will have on companies will be more dramatic the longer the employee is away from the workplace, so I would strongly recommend that employers attempt to actively manage sickness to try and avoid long periods of absence and the accrual of holiday payments. The case has yet to be heard in the House of Lords so we also need to wait to see how the judges apply the ruling to the UK.

Christine Bradbury, associate, Osborne Clarke 

The decision impacts immediately on public sector employees, who can rely directly on European law. Private employers have the benefit of waiting to see how the House of Lords will interpret the ECJ decision in light of UK law. Given apparent inconsistencies between the ECJ’s interpretation of the Working Time Directive and the UK’s, the UK regulations may need to be amended. This will place an additional burden on UK businesses, which, as a minimum, will have to amend sickness policies and possibly employee contracts. However, what business most needs is clarity, consistency and stability in the rules from the UK and Europe. The quicker the House of Lords clarifies the UK position, the greater the certainty for business.

The reasons why

  • Although all employers are affected to some degree by long-term sickness, it is dealt with in many ways:
  • The three most popular ways of managing long-term absence are occupational health support, rehabilitation programmes and flexible working.
  • Six out of 10 employers provide vocational rehab services, on average after nine weeks sickness absence.
  • Just under half of organisations use disciplinary procedures to manage long-term absence, and as many use capability procedures.
  • 42% of organisations restrict sick pay to manage some long-term absences.
  • About a quarter of organisations take attendance records into account when recruiting to help manage long-term absence levels. Just over one fifth consider it when an employee applies for promotion.
  • About 40% of firms expect to increase spend on employee wellbeing benefits in 2009 just 2% expect to reduce it. One third of organisations also have an employee wellbeing strategy in place.

Source: CIPD Absence Management Survey 2008

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