On 20 January 2009 the ECJ decided that workers on long-term sick leave continue to accrue their statutory holiday entitlement, even if they do no work during the holiday year in question and/or never return to work. On termination of employment, workers who have not taken their accrued holiday will be entitled to pay in lieu of all accrued but untaken leave.

Public sector employers must implement the ECJ's decision immediately. Private sector employers should also allow holiday accrual for all employees, including those who have been absent for a long period. For both, the finer detail of how this decision will affect the right to paid leave, policies and procedures depends on how the House of Lords decides to apply the ECJ's decision in the UK.

ECJ decides that sick workers are entitled to annual leave, increasing significantly employers' costs

Should a worker, who is away from work on long-term sick leave, continue to accrue paid annual leave? If so, when should the worker take holiday? Should that worker receive pay in lieu of untaken leave? These were the questions on which the ECJ recently ruled, following the long-running cases of Kigass, Ainsworth and Stringer.

The ECJ decided that:

  • Workers accrue statutory holiday rights during any period of sick leave, regardless of whether they return to work or not.
  • Employers must allow workers to take accrued holiday, but it is up to Member States to decide when holiday needs to be taken (i.e. either during each holiday year or at the end of the sick leave period).
  • The right to paid holiday is not lost at the end of the leave year.
  • On termination of employment, employers must pay a worker in lieu of all accrued but untaken holiday. Payment is at a worker's normal rate of pay.

Public sector employers need to allow workers to accrue holiday and make payments in lieu of all untaken holiday

The ECJ's decision applies to public sector employers with immediate effect. To reduce the risk of future claims, public sector employers should allow workers on long-term sick leave to accrue their statutory holiday under the UK's Working Time Regulations WTRs as of 20 January 2009, regardless of whether the worker did any work during the holiday year and/or whether s/he returns to work.

Private sector employers are advised to adopt a practical approach, pending a House of Lords ruling

The ECJ's ruling does not sit comfortably with the WTRs. It will be up to the House of Lords to decide whether the WTRs can be interpreted in line with the ECJ's decision or whether Parliamentary intervention is required. If the House of Lords decides that a consistent interpretation is possible, the ECJ's decision is likely to have retrospective effect to 20 January 2009. For this reason, private sector employers are advised to take action now and not wait for the House of Lords' ruling.

Employers need to decide when employees should take leave

The ECJ has left it for Member States to decide when accrued leave should be taken. Until we have a House of Lords decision, employers are left to make this decision. Often, the easiest and most practical solution is to allow (and require) workers to take leave during each relevant holiday year. During their leave period, workers will have to receive their normal remuneration. This means that SSP and payments under a PHI scheme may have to be supplemented. This gives rise to a number of practical issues and risks, considered below. Employers must consider a number of practical, financial and employment issues and risks Whatever the House of Lords decide, employers are advised to give advanced thought to the following.

Financial considerations

  • In some cases, the fact that a worker on long-term sickness absence takes annual leave can trigger a new entitlement to contractual sick pay under the employer's sick policy. Employers should review their procedures, consider whether this risk is relevant to them and, if so, whether and how they want to deal with it (e.g. amend their procedure).
  • It is unclear whether a worker who takes accrued annual leave when still receiving SSP payments or payments under a PHI scheme will be entitled to his/her full remuneration for the leave period, or only an 'uplift' up to the level of contractual remuneration. We hope that the House of Lords will clarify this point but, until such time, employers should carry out a risk analysis before deciding how to proceed.
  • Given the financial impact of the ECJ's decision, employers may decide to revise the financial package they offer to workers on long-term sick pay.

Employment considerations

  • If a worker is going to take his/her accrued holiday allowance on return to work, this could mean an additional prolonged period of absence, and a further detrimental impact to the business. Employers may have to extend temporary cover arrangements.
  • If a worker is too sick to take annual leave at the time required by his/her employer, can the employer force him/her to do so or otherwise argue that the right has been lost?
  • Employers should pro-actively manage those who are off sick for long periods of time to assess their future fitness for work. Some employers may be in a position to consider the possibility of dismissal at an early stage, before accruing additional significant liabilities for paid holiday (but bear in mind the associated risk of a claim for disability discrimination).

Practical considerations

  • In the UK, the ECJ's decision applies only to the right to paid annual leave under the WTRs (i.e. four weeks per year, for full time workers). However, UK workers are entitled to additional annual leave (currently four days a year for full time workers, rising to eight days from April 2009). Employers need to consider whether to extend the right to accrual to these additional leave days and/or to any additional contractual holiday days. This is likely to be a cost-benefit question, bearing in mind the administrative burden of running different holiday arrangements.
  • Employers should allow workers on long-term sick leave to accrue statutory holiday as of 20 January 2009
  • Until the House of Lords interprets the ECJ's decision, employers will have to decide when workers should take leave
  • On termination, workers need to be paid in lieu of all accrued, untaken leave
  • Employers should consider how holiday accrual and pay affect their sick pay and PHI schemes
  • Contracts of employment, sick leave and PHI policies should be revisited