Employee on sick leave allowed to carry over holiday entitlement to next leave year

19 February 2010

In Shah v First West Yorkshire Limited, the Leeds Employment Tribunal held that a worker who was unable to take a period of annual leave due to illness was entitled to carry his holiday entitlement over to the next leave year. This is consistent with the European Court of Justice’s (ECJ) decision in the case of Pereda v Madrid Movilidad SA, in which an employee who was unable to take a period of annual leave due to sickness was permitted to take that leave in the next holiday year.

Mr. Shah had booked four weeks’ holiday from 22 February to 21 March 2009. In January 2009 he broke his ankle, rendering him unfit for work until 18 April. Whilst off work he was paid contractual sick pay, except for the period he had booked as leave, during which he received the higher rate of holiday pay. On his return to work he sought to reclaim his holiday entitlement but was informed by his employer that the days were “lost” because a new leave year had started. Mr. Shah lodged a Tribunal claim for the lost days to be restored to him under the Working Time Regulations (WTR).

Reg. 13(9) of the WTR clearly states that annual leave must be taken in the period in which it accrues, that is, it cannot be carried over. However, following the ECJ’s decision in Pereda, employees must be permitted to reschedule annual leave if they are unable to take it due to sickness. The rationale was that annual leave fulfils an important health and safety function in providing employees with an opportunity for leisure and relaxation which is not the same as the purpose of sick leave, which is convalescence from illness. Consequently, workers may not be denied their right to relaxation and leisure and any annual leave that they are unable to take during the holiday year in which it accrues should be carried over to the next leave year.

The Tribunal in Shah interpreted Reg. 13(9) in the light of Pereda, extending the scope of the existing provision, holding that this was consistent with the “underlying thrust of the legislation”. As a consequence, the Tribunal declared that Mr. Shah had been denied the exercise of his rights under the WTR by his employer refusing to allow him to take the period of leave that he missed during the next leave period.

The implications of this case are naturally alarming for employers. Whilst both Pereda and Shah concerned circumstances in which the annual leave was pre-booked and the sickness absence was for a significant duration, there will, no doubt, be claims for self-certified sickness during periods of annual leave which, by implication, ought also be permitted to be rescheduled. The judgment is also unclear as to whether only holiday entitlement due under the WTR (currently 28 days) or all of an employee’s holiday entitlement, including any contractual leave, is subject to the rule.

Although this is a “first-instance” Tribunal decision, it is clearly going to receive great attention as it is an example of a tribunal effectively amending domestic legislation to comply with the ECJ’s interpretation of EU laws.