Holiday pay ruling could see long-term sick facing the axe

Pinsent Masons partner Philip Titchmarsh discusses various aspects of the House of Lords ruling on Stringer v HMRC.

Employers will desperately seek to sack staff on long-term sick leave following a major ruling that workers can accrue holiday pay while being absent from the office due to ill-health, HR chiefs have admitted.

But lawyers have warned this could pave the way for hundreds of tribunal claims.

In its long-awaited judgment in Stringer v HMRC, the House of Lords ruled last week that employees can accrue holiday pay while on sick leave. Workers that have previously been denied pay can also claim for unauthorised deductions from wages as far back as six years, under breach of contract law.

The ruling will heap further costs onto employers’ sick pay bills, which already stand at £100bn per year, causing organisations to want to dismiss those on sick leave.

Rachael Henderson, HR director at support services provider Norland Managed Services, told Personnel Today: “If we have individuals on long-term sick leave, local managers will be keen to manage them out of the business as fast as possible, so as not to incur more cost than necessary.”

Carol Mills, HR director at Lancashire County Council and the lead on wellbeing at the Public Sector People Managers’ Association, warned HR was under great pressure to control budgets.

“This ruling will increase focus on getting [those on long-term sick leave] out of the organisation more quickly,” she said.

However, Rachel Dineley, employment partner at law firm Beachcroft, warned that seeking to dismiss the long-term sick to save money could lead to costly claims.

She said: “If someone is on long-term sick leave, it’s indicative of some kind of disability. No employer should blindly assume their best bet is to dismiss employees on long-term sick leave, as that could lead to claims for unfair dismissal and disability discrimination.”

The Chartered Institute of Personnel and Development urged employers to improve absence management to reduce the number of staff on long-term sick leave.

The Stringer case follows the European Court of Justice ruling in January that staff do accrue paid holiday for their entire sick leave, and must be allowed to take it on their return or be paid in lieu if their employment ends.

The Court of Appeal had originally held that employees on sick leave did not accrue annual leave during the time they were not working.

What’s changed… Jeya Thiruchelvam

Workers on long-term sick leave can recover holiday pay not only under the Working Time Regulations 1998 (WTR) but also as an unlawful deduction from their wages under the Employment Rights Act 1996. This has opened the door for workers on sick leave to claim holiday pay going back years – the only caveat is that the outstanding payments need to be part of a series of deductions, with the most recent being no more than three months old.

Theoretically, workers should now also be able to claim outstanding holiday pay via a breach of contract in a county court – the time limit for which is six years running from the date of the breach.

Significantly, the House of Lords did not address the issue of carrying over unused holiday accrued under the WTR from one year to the next, which is unlawful. Further case law is needed before employers can confidently navigate their way around this.

Jeya Thiruchelvam, employment law editor, XpertHR Group

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