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Employers Must Take Note of Court of Appeal Ruling on Sickness Absence and Holiday

An important decision for employers has today been handed down by the Court of Appeal (“CA”) regarding payment in lieu of accrued but untaken holiday on termination of employment where a worker has been on sickness absence.  Employers should take note of the decision, as it has implications for workers who are unable or unwilling to take annual leave because of sickness.

The CA has held that a worker who was unable to take 4 weeks’ annual leave due to sickness did not have to make a request to carry the untaken leave over into the next leave year in order to receive a payment in lieu of it on termination of employment.  The worker was therefore entitled to holiday accrued but untaken in respect of the leave year in which her employment terminated and the preceding leave year.

There have been numerous cases before the courts and tribunals regarding the situation where a worker is unable to take all of their annual leave in a holiday year due to sickness absence.  The position was:

Under the Working Time Regulations (“WTR”), workers are entitled to a minimum of 5.6 weeks’ paid holiday.

The WTR provides that 4 weeks’ of such statutory holiday may not be carried over from one year to the next, and the remaining 1.6 weeks may only be carried over if this is provided for in a relevant agreement, such as an employment contract.

The WTR further provides that payment can only be made in lieu of untaken holiday on termination of employment in respect of the leave year in which the employment terminates.

Under European law, workers are entitled to 4 weeks’ paid holiday and the European Court of Justice held that this should be carried over to the next leave year where a worker is precluded by illness from taking their holiday in the year in which the holiday has accrued.

In the UK, however, there had been uncertainty as to whether workers affected by illness would only carry over untaken holiday entitlement if they had requested the holiday, or to carry it over, before the end of the leave year when it accrued. The previous leading decision said that this was the case.

It was also unclear whether the entitlement to carry over would be applicable in respect of 4 weeks’ holiday or the full 5.6 weeks’ holiday under the WTR.

The issue has been heard by the CA, which has today handed down its judgment.  Mrs L worked for a hospital and was absent from work due to sickness for the whole of the 2009 – 2010 leave year.  Her employment terminated during the 2010 – 2011 leave year. The hospital paid her in lieu of untaken holiday that had accrued up to the termination date in respect of the 2010 – 2011 holiday year only.

Mrs L brought a claim in the tribunal, arguing that she was entitled to payment in respect of the holiday accrued but not taken during the 2009 – 2010 leave year.  The tribunal, and the Employment Appeal Tribunal (“EAT”) on appeal, upheld her claim. The hospital appealed to the CA, arguing that Mrs L was not entitled to the holiday claimed as she had not made a request to take the leave nor had she made a request to carry it over to the next leave year.

The CA upheld the decisions of the tribunal and EAT.  The CA held that there was no requirement on a worker to request to take or carry over the leave and so, if a worker is unable or unwilling to take their full statutory holiday entitlement due to sickness absence, they must be allowed to take it at another time, which may result in leave being carried over to the next holiday year. Therefore, a payment in lieu of holiday on termination of employment had to include payment in respect of holiday accrued but untaken in previous leave years.

The CA did not address the issue regarding whether this entitlement applies in respect of 4 weeks’ leave or 5.6 weeks.  A recent decision of the European Court of Justice has suggested that the entitlement applies only to the former.

To summarise, this is an important decision for employers who have workers on long-term sickness absence.  Employers should take legal advice on how to manage such sickness absence, in order to avoid workers accruing large amounts of holiday which could be costly to reimburse on termination.

It is emphasised that the principles outlined above will only apply to the 4 weeks’ holiday entitlement under European law, unless a worker’s contract of employment states otherwise, and not to any other contractual entitlement (including bank holidays) that a worker may have to holiday in excess of 4 weeks.