Holiday pay due during long-term sick leave

In one of the most anticipated cases of this year, the European Court of Justice (ECJ) has ruled that holiday entitlement accrued during long-term sickness can be carried over.

The judgment followed its consideration of Stringer and others v HM Revenue and Customs and a similar German case. The court ruled, in rather confusing language, that “the right to paid leave is not extinguished at the end of the leave year and or of a carry-over period where the worker has been on sick leave for the whole or part of the leave year.”

The ECJ also ruled that when employees who have been on long-term sick leave resign, they will be entitled to pay in lieu of untaken leave.

Interpreting the decision, Teresa Dolan, partner, Hammonds said: “The ECJ confirmed that workers rendered incapable of work through illness have the right to annual leave. If they are unable to take their holiday during a particular leave year because of illness they are entitled to carry over any untaken holiday to a subsequent leave year.

“Furthermore, if such workers haven’t had the chance to take their accrued holiday by the time their employment terminates, they are entitled on termination to a payment in lieu of such leave. The Stringer case will now be referred back to the House of Lords for it to apply the decision in line with the Working Time Regulations.”

Katja Hall, the CBI’s director of HR policy, said: “This is a real blow to firms trying to keep jobs alive during the recession. Businesses themselves also suffer when staff take sick leave, and we had hoped that a compromise could have been achieved over unused holiday time.

“Instead, at a time when the economy is struggling, this judgment will ensure that staff are away from the workplace for longer. And it will create a headache for HR departments, who will have to review their policies and contracts.”

Mark Mansell, employment partner at Allen & Overy said: “Many employers either prevent employees from carrying holiday forward into the next leave year, or allow them to carry forward only a minimal amount.

“The European Court has said that employees can take the holiday they have accrued while off sick when they get back, even if this means taking it in the next leave year. As a result, UK working time rules (which prohibit carry-over) will need to be amended and employers’ policies on accruing and taking holiday may also need to be changed.

“However, the court only discussed statutory minimum holiday. Employers can probably take a stricter line in relation to contractual holiday that exceeds the statutory minimum.”

The House of Lords will give a final judgment in the light of the ECJ opinion and may overturn a 2005 Court of Appeal decision that held that holiday did not accrue if an employee was absent for the whole leave year, and employees were not entitled to be compensated for the lost leave.

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