European Court rules workers off on long term sick are entitled to holidays

22 January 2009

The eagerly anticipated judgment in Stringer & Others v HM Revenue and Customs has now been handed down by the European Court of Justice.  The outcome will not be welcomed by the UK business community.

Background
In 2005, our Court of Appeal held that a worker was not entitled to take, or accrue, paid annual leave under the Working Time Regulations (WTR) during a period of sick leave. The Court also held that, if a worker’s employment terminates during a year in which they have not worked at all due to sickness, he is not entitled to a payment in lieu of holiday upon the termination of his employment.

The workers appealed the ruling to the House of Lords which referred questions on the interpretation of the Working Time Directive to the European Courts of Justice (ECJ).

ECJ decision

• Carrying unused annual leave forward

The ECJ were clear in their ruling that in accordance with the Working Time Directive, a worker continues to accrue statutory annual leave whilst off sick. What if a worker is unable or prohibited from taking annual leave during the period of sickness absence? Can that leave be carried forward into the next holiday year? The ECJ held that where a worker has been off sick for the year or part of the leave year and the worker is unable to take the annual leave during that leave year, the worker is entitled to carry that leave forward to the next year.

• Entitlement to a pay in lieu of annual leave on termination of employment

The ECJ held that where a worker’s employment terminates following a period of long term sick leave either for the whole or part of the leave year and the sickness was the reason the worker could not exercise his right to annual paid leave, the worker must be paid in lieu of leave not taken. Payment must be made at their normal salary rate.

• Taking paid annual leave during sick leave

With regard to when accrued annual leave can be taken, the ECJ held that member states were not prohibited from stipulating that workers on sick leave are not entitled to take paid annual leave during periods of sick leave, provided that the worker can take the leave at another time. It is up to the national courts to decide whether the paid leave can be taken during that year, or whether it should be carried over to another year but either way, the employee is entitled to the holiday at some point or a payment in lieu on termination.

Comments
The ECJ ruling has important implications for the WTR which currently do not permit the carrying forward of annual leave from one year to the next, without employer consent. The House of Lords will now hear the case and we must watch and wait to see how the decision will be incorporated into UK law and whether the WTR will be amended. Private sector workers are still governed by the WTR, however public sector workers may be able to rely on the Directive itself to claim compensation for untaken leave that has been carried over.

There are still a number of issues that arise out of the judgment and must be addressed, such as when is a worker “unable” to take annual leave, and is the right to paid annual leave intended to apply to employees who have already received full pay during their sickness absence, which will have the undesirable and surely the unintended effect of inflating their pay.

At this stage we would not advise our non-public sector employer clients to change any of their policies or procedures in relation to sickness absence until the effect of this decision on UK law is clarified by the House of Lords. In the meantime, we would advise employers who wish to do so, to continue to manage sickness absence as robustly as possible.