Legal Q&A: Sick leave and holidays in light of Stringer and Pereda

After a period of calm, 2009 has seen two important rulings from the European Court of Justice (ECJ) that will lead to key changes in the management of holiday entitlement, particularly for employees who become ill during annual leave or are on long-term sick leave. The cases in question are HMRC v Stringer and Others, closely followed by the Spanish case of Pereda v Madrid Movilidad SA– the combined effect of which will be to allow employees considerable flexibility when periods of sickness and holiday collide.

Q What were Stringer and Pereda about?

A Both cases challenged the employer’s treatment of employees in respect of annual leave derived from the Working Time Regulations (WTR) and the Spanish equivalent – ie, not to allow additional periods of contractual leave.

Stringer concerned two sets of aggrieved employees at the Inland Revenue. The first concerned a group of employees who had been absent on long-term sick leave throughout the leave year in which they were eventually dismissed and who had not taken annual leave; the second was an individual who had been on sick leave for several months who then gave notice to take her 20 days’ paid annual leave and had her request refused.

Pereda concerned an employee from the Vehicle Impounding Department, who had been allocated annual leave for four weeks and who was unable to take it, having had an accident at work just before his annual leave was due to start. He then requested allocation of a new period of paid annual leave, which was rejected by his employer without giving any reason.

Q How did the European Court of Justice (ECJ) approach these issues?

A The ECJ approached both cases in a similar way, emphasising that paid annual leave was seen to be a particularly important principle of community social law. It stressed the importance of a worker being entitled to take rest and relaxation deriving from annual leave being entirely different from a period of recovery from sickness.

The ECJ was heavily influenced by the wording of Article 7 of the Working Time Directive (WTD), which sets down that “every worker is entitled to paid annual leave of at least four weeks”. As such, it said that no distinction should be made between workers absent on sick leave (whether short-term or long-term) and those who have worked throughout the leave year. Entitlement to annual leave clearly attaches to worker status.

The member states of the European Union cannot require a worker to have actually worked during a holiday year to benefit. Following these principles, the ECJ therefore decided that national law can prevent workers from taking annual leave while absent on sick leave, but those workers must have opportunity to exercise the right during another period, even if that is after the end of the leave year, if they are unable to take their annual leave due to illness.

Furthermore, national practices that allow a worker to take paid annual leave during a period of sick leave are not contrary to the WTD. What national law cannot do is extinguish the right to paid annual leave if a worker is on sick leave for the whole or part of a leave year. Accrued annual leave calculated on the basis of normal remuneration must be paid in lieu on termination regardless of whether the employee has been off sick for the whole or part of the leave year.

Q What about being sick during scheduled leave?

A The ECJ in Pereda decided that a worker who is on sick leave during a period of previous scheduled annual leave has the right, on his request and in order that he can actually use the annual leave, to take it during a period that does not coincide with the period of sick leave, even if that period falls outside the annual leave year. In a worrying development for employers, the ECJ in Pereda also said that where a worker does not want to take annual leave during a period of sick leave, the annual leave has to be granted for a different period – ie, while a worker might be allowed to take annual leave during sick leave (from Stringer), if that worker does not wish to, he must be granted that leave at a different time. These decisions place Regulation 13(9) of the UK WTR (which only allows eight days to be carried forward) at odds with European case law, and the UK government will need to consider amending our regulations.

Q What holiday entitlement is affected?

A The Stringer and Pereda decisions were based on statutory holiday entitlement deriving from the WTD and, in Stringer, from the UK WTR. They do not affect contractual holiday entitlement over and above the current 28-day full-time entitlement. There is debate as to whether the decisions only affect the original 20-day (four-week) entitlement from the WTD or the new 28-day (5.6-week) entitlement following changes to the UK WTR. The courts have not been specific about this point in any of the decisions to date and only a further case can finally determine this.

Q What claims could a worker bring and how far back could they go?

A The House of Lords in Stringer looked specifically at this question, as one of the claimants in that litigation, Mr Ainsworth, brought his claim for accrued holiday pay on termination under both Regulation 14 of the WTR, and as an unlawful deduction from his wages under Part II of the Employment Rights Act 1996. The Lords decided that the claims for unpaid holiday can be brought as an unlawful deduction from wages. The practical application of this is that, in addition to the ability to bring a claim under Regulation 14 (which has to be brought within three months of each failure to pay holiday pay or accrued holiday pay entitlement on termination), the claim may now be brought as an unlawful deduction from wages.

Employees have three months from the last in a series of deductions to make a claim. They can therefore go back more than three months. The combined effect of this and the substance of the Stringer decision in the ECJ is worrying for employers that have employees on long-term sickness absence who have not taken any holiday during that absence.

Q Can an employer insist an employee take holiday during sickness absence?

A Stringer did not deal with this matter specifically and, clearly, if employers request that staff designate periods of sick leave as annual leave, perhaps using the notice provisions in the WTR, this would prevent a significant build up of accrued holiday pay over time. However, the ECJ’s pronouncements in Pereda cast doubt on the ability of a employer – particularly one in the public sector – from being able to do this without employee consent.

Q What evidence can an employer ask for if an employee falls ill on holiday?

A This important point was not covered by the ECJ. To minimise the possibility of abuse, it is recommended that employers follow their standard reporting obligations and requirements for supporting medical certificates, including the possibility of requesting a doctor’s certificate while an employee is on holiday (even if abroad) certifying that, at that time, the employee was incapable of work. This may all lead to employers with more generous sick pay entitlement to re-think their position.

Joanne Owers, partner, Fox Williams

Xperthr Faq

What other payments might an employee be owed upon termination of employment other than their salary?

Employees may be owed work-related expenses incurred as at the date of termination. If they have accrued holiday that has not been taken by the date of termination, they will be entitled to pay in lieu. Alternatively, if an employee has taken more holiday entitlement than he or she has accrued, the employer has the right to deduct the appropriate amount from his or her final pay (provided this has been agreed by the employee in writing in advance). For any bonus or commission payments, the employer should refer to the terms of the employment contract.

From XpertHR FAQs

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