The Court of Appeal has handed down its decision in the case of NHS Leeds v Larner this morning. The Court has decided that workers, who have been absent from work on sick leave, are entitled to holiday pay in lieu of untaken statutory holiday on termination of employment whether or not they have requested to take the holiday, or carry it over, during the relevant leave year. This decision will be an unpopular one for many education institutions, both in terms of its immediate impact and the fact that further questions still remain on this thorny issue.

The Court of Appeal’s decision does however resolve a conflict which has arisen following a number of Employment Appeal Tribunal (EAT) rulings. Most recently, in Fraser v Southwest London St George’s Mental Health Trust, the EAT held that workers are only entitled to holiday pay where they actually exercised their right to take the leave in question. But, in NHS Leeds v Larner, the EAT held that workers were entitled to a payment in lieu of outstanding holiday entitlement regardless of whether they had requested to take that holiday during the relevant period.

The case also resolves an issue which had arisen regarding carrying over holiday, which had remained untaken due to sickness, into a subsequent holiday year, which was caused by the drafting of the Working Time Regulations 1998 (the WTR).


Mrs Larner, a clerical officer, went on sick leave on 5 January 2009 and did not return to work prior to the termination of her employment on 8 April 2010. She sought to recover pay in respect of the statutory holidays which remained unused (and unrequested) throughout her sickness absence. Her employment tribunal claim was successful, and on appeal, the EAT rejected NHS Leeds’ argument that Mrs Larner had lost her statutory holiday entitlement for the relevant leave year as she had not complied with the mandatory requirements of the WTR by giving notice to take the holiday in question.

Court of Appeal Decision

The Court of Appeal decided that Article 7 of the Working Time Directive is directly effective against an emanation of the state such as the NHS Trust, the employer in this case. The status of education institutions in this regard is beyond the scope of this briefing.

Article 7 specifically provides that “every worker is entitled to paid annual leave of at least four weeks”, which cannot “be replaced by an allowance in lieu, except where the employment relationship is terminated”. This means that workers must be allowed, if necessary, to take annual leave in a subsequent leave year. There is no requirement in Article 7 for workers to comply with notice provisions such as those laid out in the WTR or to have to make any request to take or carry forward annual leave.

As regards private sector employers, the WTR can be interpreted to comply with Article 7, by reading words into the WTR to allow for holiday to be carried over into a subsequent leave year in circumstances in which the worker in unable or unwilling to take the holiday because he or she is on sick leave.


In upholding the EAT’s decision, the Court of Appeal has confirmed that a ‘use it or lose it’ rule does not apply in the case of workers on sick leave. A worker who has been absent on sick leave and has, as a result, been unable to take the four weeks’ annual leave entitlement must be allowed to take it at another time, which may mean allowing that leave to be carried over into a subsequent leave year. This rule applies whether or not the worker has requested to take the holiday or to carry it forward during the relevant leave year.

The Court makes clear that this right to carry forward annual leave does not only apply to a worker who is unable to take leave in the year it accrues. It also applies to a worker who is unwilling to take annual leave during a period of sickness absence. This seems to put paid to any argument that a worker loses the right to carry forward on the basis that he had the opportunity to take holiday regardless of being sick.

The main issue left unresolved by this decision (because it wasn’t relevant in the particular circumstances of the case) is whether a worker should be paid in lieu of any untaken holiday on termination of employment or whether the right to carry forward is limited in time. European Court of Justice case law suggests it is possible to apply a cut off and to limit the carry forward period, but this point requires further clarity from the UK courts. To the extent that it is legitimate for an employer to apply a carry forward period in these circumstances, it remains to be seen what the maximum such period is.

This decision will inevitably be scrutinised by the government which is already proposing to amend the Working Time Regulations (WTR) to permit carry over where a worker has been unable to take his annual leave due to sickness and it is not possible to reschedule that leave in the current holiday year. The government has proposed to limit the ability to carry over or reschedule annual leave which has accrued due to sickness absence to the 20 day EU entitlement, meaning that the additional UK entitlement of 1.6 weeks will not carry over in these circumstances. The Court of Appeal’s decision is consistent with these proposals and provides some guidance as to how these changes may be made.  What is missing from the government’s proposals is some clarity on the period for which statutory holiday entitlement can be carried forward. Many institutions will be hoping the government takes the opportunity to broaden its proposals on amending the WTR to clarify that issue also.

You can view the Court of Appeal’s decision here