The subject of leave and pay has caused a number of headaches for employers over recent years. Recent cases have sought to clarify this area of the law, however, many questions remain unanswered. One of the most confusing areas relating to leave is the interaction between sick leave and annual leave. What happens when a worker is off sick and therefore does not take his/her accrued holiday? Do workers accrue annual leave whilst off sick? Read on for a summary of the recent cases which have sought to answer some of these questions.
Accrual of annual leave during sick leave
In Stringer and Others v HM Revenue & Customs, the European Court of Justice (ECJ) held, in respect of questions referred to it by the House of Lords, now the Supreme Court (HL), that:
- workers on sick leave must continue to accrue annual leave;
- it is for Member States to decide whether workers can actually take annual leave during sick leave; and
- if workers are prevented from taking annual leave during sick leave, they must be able to take it following their return to work, even if this means carrying the annual leave over into the next holiday year.
The HL has now determined how these principles should be applied in the UK. Regulation 13(9) of the Working Time Regulations 1998 (WTR) states that “leave…. may only be taken in the leave year in respect of which it is due”. The parties agreed that statutory annual leave could not therefore be carried forward to the next holiday year. The HL held that it was therefore necessary to interpret the WTR as allowing workers on long-term sick leave to take (and be paid for) annual leave whilst on sick leave.
However, this case raises as many questions as it answers. For example, what happens if the worker does not request annual leave whilst on sick leave? Does the employer have to permit annual leave to be carried forward in these circumstances, despite the WTR? Many of the points raised by the ECJ were not fully considered by the HL, and therefore the manner in which the ECJ’s decision might be interpreted under UK law remains uncertain.
Sick leave during a period of annual leave
In Pereda v Madrid Movilidad SA, the ECJ considered what happens if a worker falls ill during a pre-arranged period of annual leave. Previously, it had been thought by many employers that the worker would simply lose that annual leave, however the ECJ held in this case that the worker has the option to designate an alternative period of leave as annual leave.
This has potentially far-reaching implications for employers, as a worker who falls ill during a period of annual leave may (subject to notification requirements) be entitled to reclaim this leave. This case also makes clear that, although a worker can take annual leave whilst on sick leave, the employer cannot force the worker to do so.
In Shah v First West Yorkshire Limited, the Leeds Employment Tribunal had to consider how the Pereda case should be interpreted under UK law, in circumstances where there was insufficient annual leave remaining in the current holiday year for the worker to be able to designate an alternative period of leave as annual leave in that holiday year. It was held that, despite the WTR requirement for leave to be taken in the current holiday year, it was possible to interpret that provision in line with the case of Pereda by adding additional wording into the WTR. This permits the carry-over of annual leave into the next holiday year where a worker has been prevented by illness from taking that annual leave in the holiday year to which it relates.
What claims can a worker bring?
There are two types of claims which a worker might bring in relation to statutory holiday entitlement:
- A claim under the WTR.
- An “unlawful deductions from wages” claim. In Stringer, the HL held that holiday pay amounts to “wages”.
Claims under the WTR must ordinarily be brought within three months of the alleged breach, however “unlawful deductions from wages” claims can be brought within three months of the last in a series of unlawful deductions. This means that a worker who has been off sick for a number of years (and who therefore wishes to bring a claim in relation to holiday pay for each holiday year) can potentially back-date a claim over a period of years.
The worker might also bring a breach of contract claim in relation to any alleged failure to pay contractual holiday pay.
Notice to take annual leave
Employers are entitled to require workers to provide notice of their intention to take annual leave. The WTR requires workers (or employers, in the event that the employer wishes to compel the worker to take leave on particular dates) to provide twice as many days’ notice as the number of days’ leave required (i.e. 10 days’ notice for 5 days’ holiday), however this can be varied or excluded by a relevant agreement, which includes a contract of employment.
In Lyons v Mitie Security Limited, the Employment Appeal Tribunal (EAT) held that, provided the employer operates its notice requirements correctly and does not act unreasonably, arbitrarily or capriciously, it can prevent a worker from taking holiday and/or carrying it forward to the next holiday year, if the worker fails to comply with those notice requirements, even if the worker thereby loses that holiday entitlement.
Pay in lieu of annual leave on termination
As outlined above, workers are not entitled to carry forward statutory annual leave under the WTR.
However, in Beijing Ton Ren Tang (UK) Ltd v Wang, the EAT held that a worker who was entitled (under the terms of an oral agreement) to 30 days’ holiday per annum, and who had been informed that she would be paid in lieu of untaken leave on termination, would be entitled on termination of employment to pay in lieu of not only those days outstanding for that holiday year, but also in respect of previous holiday years.
Timing of leave
In some industries it is commonplace for employers to require workers to work intensively over a period of time, followed by a lengthy period of rest. In Craig and Others v Transocean International Resources Limited, the EAT held that offshore workers’ entitlement to annual leave could be satisfied by a working pattern of two weeks working offshore followed by two weeks rest onshore. It was found that the period spent onshore could amount to annual leave, as this was not “working time”.
Annual Leave and Pay – Key Points
- Full-time workers are entitled to 5.6 weeks’ annual leave per year (including Bank Holidays).
- Workers have no entitlement to carry statutory leave forward to the next holiday year (unless they have been unable to take annual leave due to sickness absence), but workers may have a contractual entitlement to do so.
- Workers accrue annual leave during sick leave.
- A worker can take annual leave whilst off sick, but cannot be forced to do so.
- If the worker is not able to take annual leave due to sickness absence, the worker must be permitted to carry it forward to the next holiday year.
Practical tips – leave and sickness absence
- Give notice to workers to take annual leave during a period of long-term sickness absence (but remember that you cannot force the worker to do so).
- If the worker requests leave during long-term sickness absence, but the employer does not want to agree to this, consider issuing a counter-notice preventing the worker from taking that leave.
- Consider operating a “use it or lose it” policy, on the basis that this is in accordance with the WTR. However, be aware that this may well be contrary to EU law.
- Consider arguing that, if a worker fails to request to take or carry forward leave, the entitlement to it is lost.
- Budget for the possibility that employees on long-term sick leave will be entitled to carry forward leave over a number of years, resulting in a large payment in lieu of annual leave on termination.