Q&A: Holiday pay and sick absence

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PCS Comment

2 April 2009

The European Court of Justice's ruling about holiday pay during sickness absence is an important decision for employees.

Legal questions and answers

Q. What's the background?

Q. What did the ECJ decide?

Q. What does this mean in practice?

Q. What are the next steps?

What’s the background?

Stringer and others v HMRC involves an important ruling on the issue of accrued holiday pay during periods of sickness and has been widely criticised by employers.

In the case, which was decided together with a German case, the claimants were former employees of HMRC.

One requested annual leave during sickness absence, which HMRC refused.

The others were dismissed following long-term sickness absence, and claimed payment in lieu of holiday which they claimed had accrued but was not taken.

The claims were made under the working time regulations 1998 (WTR), the UK legislation which implements the European working time directive.

The claimants won in the employment tribunal but HMRC appealed and the decision found its way to the House of Lords.

In December 2006, the House of Lords referred the case to the European Court of Justice (ECJ) to clarify some points of law.

What did the ECJ decide?

In giving its decision the ECJ made various findings and observations about the directive and the rights it provides:

A worker's right to paid annual leave under the directive is an important principle of European Community law in terms of ensuring workers' health and safety from which there can be no derogations. It is only where the employment relationship is terminated that the directive allows a payment in lieu of annual leave.
The directive provides that every worker is entitled to at least four weeks’ annual leave and does not distinguish between workers who are absent on sick leave and those who have worked throughout the leave year.
The directive does not prevent member states from denying workers the right to take annual leave while absent on sick leave, but those workers must have the opportunity to take paid annual leave during another period. However, a worker who is on sick leave for the whole leave year, and until the end of any carry-over period for leave, is effectively denied the opportunity to benefit from paid annual leave. Member states must provide for the loss of the right to paid annual leave in the case of a worker on long-term sick leave who has not had the opportunity to exercise it. The same reasoning applied where the worker has worked for part of the leave year before taking sick leave.
A worker who has been on sick leave for the whole or part of the leave year and any carry-over period, and has therefore been unable to take paid annual leave, cannot be excluded from the right to a payment in lieu on termination of employment.
Where a worker has been prevented by sickness from taking paid annual leave before employment ends, the payment in lieu must put the worker in the position in which he/she would have been had the right been exercised during employment, i.e. at the worker's normal rate of pay.

What does this mean in practice?

In summary, the decision means:

Workers must not lose their holiday entitlement because they are off work sick.
Workers who have exhausted their entitlement to sick pay must be allowed paid annual leave nonetheless if it has not already been taken.
Member states must either provide for annual leave to be taken during the leave year in question, or if they do not allow this, where the reason the worker has not taken annual leave during the leave year is because they are off work sick, the worker must be allowed to carry over their leave.

What are the next steps?

The Stringer case will now return to the House of Lords, which will determine how the WTR can be interpreted in line with the decision.

The judgment seems to require that employers permit workers on long-term sick leave to carry over their untaken annual leave into the following leave year.

However, the WTR provide that the basic four weeks’ leave (but not the additional leave recently granted to workers) can only be taken in the leave year in respect of which it is due and cannot be carried over.

The likely decision of the House of Lords would be to allow workers on long-term sick leave to take a period of paid annual leave before the expiry of the current leave year.

Alternatively, the Lords could determine that the WTR will need to be amended to allow untaken annual leave to be carried over.

In the latter case, pending any amendment, public sector workers could in the meantime rely directly on the directive as interpreted in Stringer to avoid the restrictions of the WTR on carrying over leave.

This is not intended as legal advice on individual cases. With thanks to Russell Jones & Walker, part of Slater & Gordon Lawyers.

Public and Commercial Services Union