The Advocate-General has stated that employees on sick leave from work continue to accrue their entitlement to paid holiday under the Working Time Directive (the Directive).
Employees on sick leave brought tribunal claims against HM Revenue and Customs asserting that they were entitled to take paid holiday entitlement during their sick leave or, in the case of employees who had been dismissed, to be paid in lieu of accrued entitlement. In April 2005 the Court of Appeal held in Stringer v HMRC, that the right to statutory paid holiday under the Working Time Regulations 1998 (WTR) (which implement the Directive in the UK) does not continue to accrue whilst an employee is off on long-term sick leave. The employees appealed to the House of Lords who referred the question to the European Court of Justice (ECJ).
In her opinion, the Advocate-General stated that entitlement to paid holiday does accrue when an employee is on sick leave from work. It follows that a worker is entitled to designate a future period as paid annual leave. However, workers are not allowed to take their holiday while on sick leave. On termination of employment, workers are also entitled to a compensatory payment to reflect accrued but untaken holiday leave, even where the worker has been on sick leave for the full holiday year.
In a linked German case (Schultz-Hoff v Deutsche Rentenversicherung Bund) the Advocate General went on to suggest that a worker on sick leave throughout an entire holiday year should be able to take their accrued holiday entitlement on their return to work and that accrued leave cannot be cancelled just because a holiday year comes to an end. This suggests that on termination an employee would also be entitled, under the Directive, to be paid in lieu of untaken holiday from a previous holiday year. If so the provisions of the WTR preventing carry over of untaken holiday from one year to the next are in breach of the Directive.
Impact on employers
This is not a welcome decision for employers. If it is followed by the ECJ, it will increase the cost to employers of keeping employees on long-term sick leave, but should encourage more pro-active management of long-term sickness absence.