At this time of year, everyone starts to dream of their summer holiday – but, according to the travel industry, false holiday sickness claims have mushroomed since 2013, driven in part by claims management companies encouraging holiday-goers to pursue compensation.

The Solicitors Regulatory Authority has warned solicitors of increasing reports of holiday sickness claims being dismissed as dishonest, and last year the government announced its plans to fix the legal costs which can be claimed in package holiday sickness claims.

With bogus holiday sickness claims on the rise, employers are encouraged to review their policies and procedures for dealing with employees when their reported sickness coincides with prescheduled holiday leave. In doing so, employers will need to tread carefully to avoid liability for accrued but untaken holiday in light of the ECJ's rulings in Pereda v Madrid Movilidad SA (2009) and ANGED v FASGA and others (2012).

What is a worker's holiday entitlement?

The EU's Working Time Directive gives workers a right to at least four weeks' paid holiday per year. The UK's Working Time Regulations give workers a minimum of 5.6 weeks annual leave, paid at their normal rate of remuneration, but split this into two types of leave: four weeks under Regulation 13, which is the entitlement under the Directive, and then an additional 1.6 weeks (equivalent to eight public holidays, for someone working a five day week) under Regulation 13A.

Workers can reschedule time off if they are ill while on holiday

Following the Pereda and ANGED decisions, workers who become sick before or during a period of previously scheduled holiday should be able to reschedule that holiday at a later date and, if there is not sufficient time in the relevant holiday year, to carry it over to the next.

Although the Working Time Regulations 1998 do not appear to allow statutory holiday to be rescheduled or carried over to the next year, the UK courts and tribunals are obliged to interpret them consistently with ECJ decisions where possible. This is thought to apply only to the first four weeks' (Regulation 13) holiday, not to the additional 1.6 weeks.

At the time of the ANGED decision, the government estimated that the ECJ rulings would cost UK private sector employers over £100 million a year in extra wage payments. Employers feared that workers would attempt to secure extra time off work by converting holiday into sick leave. The rise of reported fraudulent and exaggerated sickness claims in recent years will resurrect these fears.

Since the Pereda ruling, we have seen this happen in UK cases such as Shah v First West Yorkshire Limited (2009) (the first employment tribunal to test the issue since Pereda) and NHS Leeds v Larner (2012) (where the Court of Appeal ruled that a worker is entitled to payment for untaken holiday upon termination, even if they do not request that it is carried over to the next year).

While the extent of the ECJ's influence on UK courts and tribunals post-Brexit remains uncertain, for now, at least, it's likely that they will continue to follow these ECJ decisions.

Best practice for employers is therefore to allow employees to reschedule any holiday affected by sickness (at least up to the four weeks' statutory leave entitlement under the Working Time Directive) and carry it over to the next holiday year. It is perhaps all the more important that employers have precautions in place to prevent abuse of this in light of the recent travel industry reports and last year's announcement.

What employers can do

Review your policies

Your company policies should set out how sickness and annual leave will be treated. Ideally, they should allow for holiday to be carried over when affected by sickness, but should make clear that any abuse of this will lead to disciplinary action.

Of course, employers may prefer to hedge their bets and refuse to allow employees to reschedule sickness-affected holiday (arguing that the Working Time Regulations don't require them to), but this would be in breach of the law. However, as noted above, you may wish to draw a distinction between the treatment of Regulation 13 and Regulation 13A leave.

If you offer enhanced sick pay, employees may feel more encouraged to report an illness whilst on holiday than if they were entitled to statutory sick pay alone (its lower rate, and the fact that it is not payable for the first three days of sickness absence, removes any financial incentive for "faking it").

Another option is to make enhanced sick pay discretionary rather than contractual, so that there is no obligation to pay it in instances where employees call in sick from the beach. You could also limit contractual sick pay when sickness occurs on holiday unless medical evidence is produced, but this may require making changes to employment contracts – and may also signal a lack of trust.

Employees may in fact feel less inclined to disguise their leave as sickness if they are offered more flexibility when booking leave: do you allow last minute holiday requests? Are your employees on flexible working arrangements?

Sick pay is only payable when a worker is medically unable to do his job: an employee who suffers from a muscle strain on a skiing trip may still be fit to work if they were back in the office. It is arguable that the same test applies to whether or not their holiday can be rescheduled at all, but case law leaves this point ambiguous.

Monitor absences

Have a clear system in place to record and monitor holiday and sickness absence – and cross check the two against each other. This will help to detect any non-genuine claims of sickness.

Keep any long-term absences on your radar, too. Following Pereda, the temptation may be to dismiss employees on long-term sickness leave to avoid large liabilities to pay out on termination. You will first need to ensure that the reason for absence and the appropriateness of dismissal have been properly evaluated, and a fair procedure is followed.

An unfair dismissal or disability discrimination claim against you may result in a liability much greater than an employee's accrued holiday pay, particularly since recent case law suggests there is a limit to carrying over sickness-affected holiday (for example, 15 months from the end of the relevant holiday year in the 2011 ECJ case of KHS AG v Schulte).

Follow your standard reporting and certification procedures

Employees are normally required to phone in on their first day of sickness and speak to a line manager or HR. The same should apply for sick leave taken whilst on holiday (though you might want to afford some flexibility to employees calling in from different time zones).

Although employees can normally self-certificate for the first seven days of an illness, it is open to employers to request that, if sickness is reported during holiday, employees provide medical certification earlier than this (ie during the holiday itself, rather than on their return to the UK).

Return to work interviews are another good method of detecting any non-genuine sicknesses. Employees tempted to "pull a sickie" abroad may decide it's not worth the extra admin.

If you suspect an illness is not genuine

Check the employee's holiday and sickness records. Have they previously taken sickness leave whilst on holiday? Did they provide any evidence of sickness? Resist jumping to conclusions: there is no legal requirement that an employee off sick needs to stay at home, and the fact that they continue their holiday does not necessarily suggest that their illness is not genuine.

If you do have good evidence to suspect your employee has been dishonest, often an informal warning will be enough to deter recurrence.

Otherwise, consider disciplinary proceedings: dishonestly taking sick leave will generally be misconduct or gross misconduct. This will need to be properly investigated with medical evidence and individual meetings with the employee, in accordance with the Acas Code of Practice.