Paid holiday: ECJ ruling on Stringer v HMRC

Employees win the right to accrue holiday while on sick leave

The long-running case of Stringer v HMRC has finally reached its conclusion at the European Court of Justice (ECJ).

The case has been full of twists and turns, even changing its name along the way – it was formerly known as Ainsworth v Commissioners of Inland Revenue. It has centred on two key questions: are workers entitled to take paid statutory holiday while they are off sick? And are employees who have been off sick for the part or whole of a leave year entitled to be paid in lieu of accrued statutory holiday if their employment terminates? We now have the answer to these questions and, for employers, they are not welcome.

On 20 January – substantially overturning the current position in the UK – the ECJ addressed the two issues at the heart of the case. It also provided some welcome clarification on the right to accrue statutory holiday entitlement where absence straddles more than one holiday year.

Referring to the four weeks’ minimum holiday that workers are entitled to under the Working Time Directive, the ECJ held that national legislation or practices can prevent workers from taking this holiday while on sick leave. However, workers do accrue the holiday for the entire duration of sick leave and must be allowed to take it on their return to work, whenever that is, or to be paid in lieu of it if their employment terminates.

The ECJ’s judgment does not fit with key provisions of the UK’s existing Working Time Regulations (WTR). Under the WTR, the premise is simple: use it or lose. This means that workers who do not use their full statutory holiday entitlement in the current holiday year, are not permitted to carry it forward. The House of Lords will have to deal with this issue when the case returns there for its final conclusion. It is likely to find that the ECJ’s judgment prevails over the WTR.

The ECJ’s judgment has potentially serious financial and practical ramifications for employers, and a full review of sickness, holiday and maternity policies should be carried out without delay.

Particular hurdles that employers need to surmount are deciding how to deal with the additional 0.8 weeks’ (soon to be 1.6 weeks’) holiday conferred by the WTR, and any contractual holiday that exceeds statutory requirements. The ECJ’s judgment does not entitle workers to accrue this holiday during sickness absence, although disability discrimination issues must be considered. In practice, separating holiday entitlement may prove to be administratively difficult and employers will need to weigh this against the cost of simply allowing all holiday to accrue. Whatever employers decide, they should ensure it is clearly set out in the relevant policies.

Employers must also ensure they manage sickness absence effectively and efficiently. Allowing absence to continue longer than is necessary will see workers ‘racking-up’ substantial holiday entitlement. This could create significant financial liabilities and, where employees seek to take significant periods of holiday following extended sick leave, it could also cause severe disruption to the business.

Although this case is unlikely to find favour with employers, it has, at last, put an end to years of uncertainty over holiday entitlement during sickness absence. This much is welcome at least. The case will now return to the House of Lords, which will bring the case to its final conclusion with a decision that reflects the terms of the ECJ’s judgment.

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Key points

• Workers accrue four weeks’ holiday per year throughout any periods of sickness absence
  
• Workers must be allowed to take this holiday on their return to work
  
• Workers must be paid in lieu of this holiday if their employment terminates
  
• Employers must decide how to deal with the additional holiday conferred by the WTR and any contractual holiday and expressly set this out in sickness, absence and/or maternity policies.

Tim Marshall, partner, DLA Piper