The European Court of Justice has ruled that: a worker’s entitlement to annual leave under the Working Time Directive (the Directive) continues to accrue during any period of sickness absence; if a worker is unable to take annual leave due to sickness that leave rolls over to the next leave year; and, further, if a worker’s employment ends before they have been able to take any such leave they are entitled to a payment in lieu (Stringer and others v HM Revenue and Customs and the conjoined case of Schultz-Hoff v Deutsche Rentenversicherung Bund).

Implications

The full impact of this decision for employers will only be clear once the House of Lords issues it judgement in the light of the ECJ decision. However, the following key points arise from this ruling:

  • this ECJ decision only applies to the 4 week’s leave provided under the Directive and not the additional leave under the Working Time Regulations 1998 (WTR), (the 0.8 day increase from April 2007 and the future increase to 1.6 days from April this year) or any contractual leave in excess of this;
  • there has been no decision as to whether an employee can take annual leave during a period of sick leave, as the ECJ has said that this is a matter of national law and this decision will therefore need to be made by the House of Lords;
  • workers continue to accrue annual leave even if they are absent sick. If they are unable to take the leave during that leave year due to their sickness it will roll over to the next leave year;
  • on termination of employment, if a worker has not been able to take any such leave (including any entitlement from previous years) then they should be paid in lieu at their normal rate of remuneration;
  • public authority employers should be aware that the ECJ’s decision is capable of giving direct rights to its employees, if the UK has failed to implement EU law correctly by virtue of the WTR;
  • the WTR would appear to be incompatible with the ECJ decision, given that no “carry-over” of statutory leave is allowed under the WTR nor can “carried-over” leave be paid in lieu. Therefore the WTR is likely to need amendment;
  • it is inevitable that employers will need to consider their practices once the House of Lords decision is known. For example, either sick employees will be entitled to take full paid leave during their sickness absence (so what happens to sick pay?) or will carry over such leave to future years (so adjustments need to be made to future year entitlements) .

Facts

The UK cases including Stringer, concern employees who were arguing that they were either entitled to (a) take a period of paid annual leave during what would otherwise have been an unpaid period of sickness absence or (b) receive a payment in lieu of untaken holiday when dismissed following a period of long-term sickness absence. The German case of Schultz-Hoff concerns the payment in lieu of any “carried-over” holiday which was untaken in any leave year because an employee had been absent long-term sick.

The employees in the UK cases had been successful at the Tribunal and EAT. However the Court of Appeal decided against them on the basis that statutory annual leave could only be taken at a time during which the worker would otherwise be required to work. The employees appealed to the House of Lords, who in turn referred a number of questions to the ECJ. The German Labour Court also referred similar questions to the ECJ.

In response to this reference, the ECJ has found that it is a matter of national law as to whether a worker can take annual leave during a period of sickness absence. However, if a worker is prevented from taking annual leave, the worker must be able to take their holiday at a later date, even if the leave year has ended.

Furthermore, accrued annual leave must be paid in lieu on termination, regardless of whether the employee has been on sick leave for the whole or part of the leave year. This should be at their normal rate of pay, namely the rate they would have received if they had not been absent on sick leave.

The House of Lords will now have to decide the UK cases in the light of the ECJ decision.