Where an employee is unable or unwilling to take his or her EU-derived entitlement to four weeks' statutory holiday in the current holiday year due to being on sick leave, the employer must allow the employee to carry over this leave into a new holiday year, even if the employee has not expressly requested this.

Upholding the Employment Appeal Tribunal (EAT) ruling in Larner, the Court of Appeal held that an employee who had taken sick leave for the entire holiday year until her dismissal the following year was entitled to carry over the previous year's entitlement and receive payment in lieu of holiday on termination.

There is no right to such a carry-over in the Working Time Regulations. However, public sector workers can rely directly on EU law to this effect. The Court of Appeal ruled that private sector workers have the same rights, because the necessary wording can be read into the UK regulations (NHS Leeds v Larner).

This decision resolves the conflict with the EAT decision in Fraser v South West London St George's Mental Health Trust, which suggested that employees must expressly request a carry-over. However, unanswered questions remain:

  • Is the employee entitled to payment in lieu of holiday carried over from a previous year due to sick leave where the employee has returned to work before dismissal in the second year and therefore has an opportunity to take the holiday? This was the situation in Fraser and was the basis on which the Court of Appeal distinguished that case from Larner. It is unclear whether the court considered that Fraser was wrongly decided on its facts, but the wording that the court suggested could be read into the UK regulations would not exclude the right to payment in lieu of holiday in this situation.
  • Can employers impose a cut-off date by which carried-over holiday must be used (assuming that the employee is not on sick leave)? European Court of Justice (ECJ) case law suggests that this may be possible, provided that the period is substantial (ie, more than 12 months). The government is due to announce amendments to the UK regulations to deal with holiday carry-over; hopefully, the cut-off issue will be addressed.
  • Should the additional 1.6 days' statutory holiday provided under UK law be treated in the same way as the four-week entitlement? Again, ECJ case law suggests that different rules can apply. The government's original proposal was to limit carry-over rights to the four-week entitlement.

For further information on this topic please contact Andrew Brown at Herbert Smith LLP by telephone (+44 20 7374 8000), fax (+44 20 7374 0888) or email (andrew.brown@herbertsmith.com).

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