The Employment Tribunal has ruled that the Working Time Regulations 1998 should be interpreted to allow employees who have been unable to take holiday due to sickness absence to carry it into the following holiday year.

In Shah v First West Yorkshire Limited [1809311/2009] Mr Shah had booked four weeks' holiday. Unfortunately he broke his ankle and was then absent from work due to ill health for several weeks, including during the period he had booked as holiday. He returned to work in the new holiday year and asked to "claim back" the holiday he had missed due to sickness. His employer refused, on the grounds that he had lost his holiday as they had now entered a new holiday year.

The Working Time Regulations 1998 (the "Regulations") expressly state that leave "may only be taken in the leave year in respect of which it is due". Therefore, on the face of it, First West Yorkshire had acted appropriately as they had followed the Regulations. However, in the recent European Court of Justice decision of Pereda v Madrid Movilidad SA C-277/08 (ECJ); [2009] IRLR 959 the ECJ interpreted the Working Time Directive (the "Directive") as meaning that workers who are unable to take holiday due to sickness must be allowed to take the holiday at a different time if they so request.

In Shah, the Employment Tribunal found that to comply with the Directive national law must permit an employee who falls sick during a period of annual leave to take that annual leave subsequently, and if time does not permit that leave to be taken within the current leave year, within the following leave year. The Tribunal therefore asked itself whether it could construe the Regulations in accordance with the Directive and concluded that adding words to the Regulations to cover the limited situation dealt with by Pereda would be entirely consistent with the underlying thrust of the Regulations.

The Tribunal therefore read the following words into the Regulations: "Save where a worker has been prevented by illness from taking a period of leave, and returns from sick leave, covering that period of holiday leave, with insufficient time to take that holiday leave within the relevant leave year; in which case, they must be given the opportunity of taking that holiday leave in the following leave year".

At the time of the Pereda judgment most commentators agreed that the ECJ's decision was unlikely to impact on employers in the private sector until the Regulations were amended by Parliament. However, the above Tribunal case has continued the current trend of courts being willing to read whole new wording into current legislation (see also the EAT in EBR Attridge Law LLP v Ms S Coleman, in which the Employment Appeal Tribunal read a whole new section into the Disability Discrimination Act 1995).

The ramification of this case is that all employers are now obliged to allow employees to carry over holiday into the next holiday year if they have been prevented from taking the holiday during the current holiday year due to sickness absence. We would recommend that precedent contracts of employment are amended so that contractual holiday is excluded from carryover, which will at least restrict the new "interpretation" of the Regulations to apply only to statutory holiday entitlement.

This decision will not be too problematic in most instances. However, it could lead to those on very long term sick leave accruing large amounts of holiday which they can carry over from one year until the next. On return from sick leave they will be entitled to take the accrued holiday or, if their employment is terminated, then they must be paid in lieu.