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Accrual and carry over of holiday pay during sickness absence - are we any clearer following House of Lords ruling?
22 June 2009
Unfortunately not! The House of Lords decision in the case of
HMRC v Stringer leaves employers still unclear on the
important questions of whether holiday can be taken during periods
of sickness absence and whether a worker can carry over accrued
holiday from one year to the next. The case does, however, clarify
that claimants will have three months from the last in a series of
deductions to put in a claim under the Employment Rights Act 1996,
as opposed to three months from the date of each deduction, as
stipulated by the Working Time Regulations.
The European Court of Justice (ECJ), following a referral from
the House of Lords in the Stringer case, ruled that employees on
long term sick leave still accrue entitlement to holiday, which
they can then take when they return to work, or be paid for on
termination of employment – even if that is years later. The case
returned to the House of Lords on 30 April 2009 and the judgment
handed down on 10 June 2009 leaves employers with questions
outstanding.
Does holiday accrue during periods of sickness
absence?
Probably. HMRC conceded that holiday pay can accrue during
periods when a worker is off sick. Previous judgments by the
Employment Appeal Tribunal (EAT) have found that under the Working
Time Regulations (as well as the Directive) annual leave does
accrue during long term sick leave. The Court of Appeal ruled that
holiday entitlement does not accrue during long-term sickness but
the ECJ and House of Lords seemed to assume (without argument on
the point) that holiday entitlement does accrue. However, this was
not expressly stated in the House of Lords decision.
Can holiday be taken during periods of sickness
absence?
This is still unclear. The ECJ ruled that there is nothing in
European law precluding national laws which prohibits taking
holiday while off sick; but nor is there anything in European law
allowing it. So it seems it is all down to national laws. When the
case returned to the House of Lords, it did not take the
opportunity of deciding whether UK law does prevent
employees from taking annual leave while off sick.
Can holiday entitlement carry over from one year to
another?
This is also still unclear. The ECJ had concluded that, if a
worker was prevented from taking their annual leave because they
were off sick, then they must be allowed to take it later, either
in the leave year when they return to work, or as a payment when
their employment ends. The ECJ’s logic appears to be that if an
employee cannot take their holiday during a holiday year because
they have been off sick, then they have been deprived of a right
guaranteed by EU law. They must therefore be allowed to take it
later.
The answer may be that it depends on the particular contract of
employment. If the contract permits annual leave during periods of
sickness, then the logic behind the ECJ’s ruling that entitlement
must be carried over from one year to the next does not apply.
Possible solutions
The state of uncertainty left in the wake of the Stringer case
means employers are going to need to wait to see how the courts
clarify these issues. In the meantime, the case may result in
employers being less tolerant of employees on long-term sick leave.
Employers may look to dismiss at an earlier stage than currently to
avoid the risk of a build up of holiday during sickness absence and
the expense of having to pay employees holiday whilst they are off
sick or risk hefty payouts for years of accrued holiday. Dismissals
would be fair, so long as the employer has reached a point where
they cannot reasonably be expected to wait any longer for the
employee’s return, and they have followed a fair procedure,
including giving the employee a right to a hearing and an appeal.
Employers also need to comply with their obligations under the
Disability Discrimination Act 1995.
Employers will also need to consider who is responsible for
payment of accrued holiday in circumstances where the employee has
been off work but in receipt of PHI benefits. It is probable (but
this may be a matter for negotiation with the PHI provider) that
PHI payments will continue and the employer will have to top up to
full salary. Employers should consider now how to mitigate claims
for holiday back pay in these circumstances.
A further possible solution for employers may be to expressly
state that employees are allowed to take their holiday entitlement
during sickness absence. The employee cannot then argue that they
were prevented from taking annual leave, nor would they have built
up large amounts of accrued holiday entitlement when they return if
they take the leave during periods of sickness absence. The logic
behind the ECJ’s ruling on carry over of entitlement would not then
apply. Employers wanting to take this approach will need to review
their contracts and policies regarding absence and sick pay
provision.
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