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Paid holiday for sick workers- recent developments

18th August 2011
During the summer holiday season the issue of dealing with sick employees and their holiday entitlement is bound to arise. We wrote two articles on this subject in 2009, (see our News Items January 2009 and September 2009) but there have been a number of recent developments that should be noted. These cases deal with the question of for how far back in time the accumulated holiday entitlement can be claimed by a sick employee, and the "booking" of holiday by a sick employee.

The general rule is that an employee must either take their holiday entitlement in the given holiday year, or they lose it. Under the Working Time Regulations 1998 an employee cannot generally carry forward untaken holiday into the next holiday year, however you should note that this can be varied by a written contract of employment. Under the Regulations the only situation where the accrued holiday entitlment can be taken as pay is at the termiantion of that employment. 

Having said that, in recent years an exception has been permitted, in compliance with rulings from the European Court of Justice. These rulings establish that if a worker is unable to take holiday because of long-term illness, that worker will accumulate the holiday entitlement and will be able to take it on returning to work, even if the return does not take place until the following holiday year. In addition, that worker will be entitled to the value of the accrued untaken holiday which accrued during the period of sicness absence as pay on termination of his or her employment.

The case of KHS v Winfried Schulte, a German case heard in the European Court of Justice (ECJ) examines just how far back the entitlement can go. This is therefore relevant to any employee that has been off work on a long period of sickness absence. In this case the Advocate General  (who gives an initial opinion on a case- which is then usually, but not always, adopted by the full court) has given a ruling on this issue. This case involved an individual that had been off sick from work for over 6 years by the date his employment actually terminated in August 2008. He brought a claim in the relevant German Court for the payment in respect of his accrued holiday for the period from 2006 to 2008. The German Court noted that the right to holiday pay for 2006 and 2007 had expired, but referred the case to the ECJ for guidance on the question of accrued holiday pay rights for this period of sickness absence. The Advocate General took note of articles within the International Labour Convention, which referred to the balance of annual holiday (with pay) being taken "no later than 18 months from the end of the year in respect of which the holiday has arisen". The Advocate General reached the view that this was an appropriate period during which a worker should be able to exercise the right to take any untaken holiday. Interestingly in her opinion the Advocate General noted that pay in liue of holiday is not compensation for loss of rights, and so need not be available indefinitely, that it is in the interests of a worker to be integrated into the workforce after long-term absence, and this would be undermined if a long period of holiday were to be added after a long period of sickness absence.Furthermore she noted that if the accumulation of entitlement to annual leave is unlimited this could act as an incentive to employers to dismiss seriously ill workers sooner rather than later.

Naturally the final say in this case will be with the full ECJ. However, in the meantime the ruling gives some reason for comfort to employers in setting a reason for the restriction on the amount of time that a sick employee can ultimately claim as holiday pay after a lengthy period of sickness absence. We still take the general view that this matter is best addressed explicitly in a contract of employment, so that the questions that arise in this situation can be avoided, and both the employer and employee know what will happen with the accrued holiday entitlement during a period of sickness absence.

The second case deal with the question of how entitlement to paid holiday is triggered for an employee that has been on long term sickness absence. Under the Regulations there is a general requirement to make a request for the holiday. The Regulations set out a  notice period that the employee is required to follow to book holiday (which can be amended by the terms of a contract of employment). The case of NHS Leeds v Larner was heard by the Employment Appeals Tribunal (EAT) recently, and is authority for the proposition that the entitlement to paid leave of a worker that has been absent due to illness for a whole pay year does not depend on that worker submitting a request for such holiday before the end of the relevant pay year in question.

In this case Mrs Larner had been signed off sick from work for the whole of the pay year 2009/2010. She was later dismissed on grounds of incapability due to her long term ill health. Her employeer, on terminating her employment, refused to pay her for the untaken accrued holiday that had arisen in the previous pay year. The refusal was on the grounds that no formal request for holiday had been made by Mrs Larner. In deciding on this case, the EAT ruled that this case was similar to a case where an employee had booked holiday but been unable to take that holiday due to having been injured during that booked period and so remained off work due to sickness. The EAT said that in this case the individual remained entitled to the "right to enjoy a period of relaxation and leisure", or payment in lieu on dismissal, in the following year. Therefore the EAT upheld the right of Mrs Larner to the accrued untaken holiday pay in respect of the previous pay year. In an interesting side note in this case the EAT said that the decision may have been different in the case of an employee that had been fit who failed to make a request for holiday during the whole of a pay year. The reason being that such an employee would have had the opportunity to exercise his or her right. This raises the possibility that that on recovering from  a long term illness taking an individual over into a new holiday year that individual should claim his or her accrued holiday or face losing it, and losing the right to be paid in lieu of it.

The short answer to the problems raised in these cases is to address these issues in the contract of employment. However, it is clear that more cases like these will be heard in the Employment Tribunals in the future.

If you need any advice or assistance on issues raised in this article please do not hesitate to contact us at Hallett Employment Law Services Ltd.                    
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