The Employment Appeal Tribunal has confirmed that workers are only entitled to holiday pay under regulation 16 of the Working Time Regulations 1998 (WTR) when they actually exercise their right to take the leave in question.  The decision resolves a conflict in earlier EAT case-law, coming down in favour of the analysis in Kigass Aero Components Ltd v Brown [2002] ICR 697 and against the judgments in List Design Group Ltd v Catley [2002] ICR 686 and Canada Life Ltd v Gray [2004] ICR 673.

The EAT made the point that the same principle applies when an individual is on long term sick-leave, in that an employee who wishes to take annual leave under the WTR during a period of sickness absence must give notice of an intention that part of their absence should count as holiday.

The EAT recognised, however, that the ordinary ‘use it or lose it’ rule in the WTR may have to be adapted in the case of employees on sick leave in light of rulings from the Court of Justice of the European Union in Stringer v HM Revenue and Customs Commissioners [2009] ICR 932 and Pereda v Madrid Movilidad [2009] IRLR 959.  It is clear from Pereda that, under the EU Working Time Directive, workers on sick leave have a choice: they can choose to take annual leave during the period they would anyway be absent sick, or they can ask for it to be deferred until a later date.  The WTR, however, expressly state that annual leave cannot be carried forward from one year to the next and there has been much debate about whether the Regulations can be interpreted consistently with the Directive.  Without making a definitive ruling on the point, the EAT acknowledged (obiter) that if the claimant had asked to carry forward her annual leave into a subsequent leave year, her employer might have had to agree to the request but she would still have had to take her leave to qualify for payment under r16. The EAT noted (also obiter) that workers are entitled to a payment in respect of accrued untaken leave on termination under WTR r14 and that this might have to be read as including leave from previous years in the case of sick employees, although there is a suggestion in the judgment that previous years’ untaken leave would only have to be counted if the worker did not have the chance to take that holiday before their employment came to an end (which might be the case, for example, if the worker is still off sick at the time of termination, or if termination occurs soon after their return from sickness absence).

This case helpfully clarifies one element of the WTR.  But questions remain about whether, and to what extent, employers must allow sick workers to carry forward annual leave from one year to the next if they opt not to take it during sickness absence.  There are other cases in the pipeline that may shed some light on this point, including KHS AG v Winfried Schulte, which is due to be decided later this month, and Larner v NHS Leeds, in which the employer has asked for permission to appeal to the Court of Appeal.  We will report on developments as soon as they occur.

Fraser v Southwest London St George’s Mental Health Trust, EAT, 3 November 2011