If an employee is absent on sick leave for the whole of a holiday year, does he have to make a specific request for his holiday entitlement to be carried forward? The Court of Appeal (CA) has delivered its eagerly awaited decision on this point in the case of NHS Leeds v Larner. Its decision is perhaps of no surprise but will be disappointing for employers.

Where an employee is on sick leave for a complete holiday year, his holiday entitlement for that holiday year is automatically carried forward into the subsequent holiday year without any need for him to formally request carry over.

This judgment has been much anticipated because the decision in the Employment Appeal Tribunal (EAT) seemed to conflict with a previous decision of the EAT, and of the President of the EAT no less, in the case of Fraser v St George's Mental Health Trust. The decision in that case was that the employee in question had to formally request deferral of her annual leave; as she did not do so she lost her annual leave entitlement for the preceding years. The case has, however, now been distinguished by the CA in the latest instalment of the Larner case.

Mrs Larner was a clerical officer employed by NHS Leeds. She was off sick (with ME and depression) from 5 January 2009 until 6 April 2010, when she was dismissed on capability grounds. In January 2010 Mrs Larner went onto nil sick pay. On the termination of her employment, she requested a payment in lieu of her holiday entitlement not only for the holiday year in which the dismissal took place but also for the preceding holiday year (2009/2010).

NHS Leeds said that Mrs Larner was not entitled to receive a payment in lieu of her holiday entitlement for the holiday year 2009/2010 because at no time during that year had she requested to be paid for her holiday or to carry it forward to another year. NHS Leeds was relying on the old adage - 'use it or lose it'.

In making its argument NHS Leeds was relying on the European case of Pereda v Madrid Movilidad (2009). Mr Pereda had an accident just before a period of pre-arranged annual leave and was signed off sick for the whole period of his annual leave. The European Court of Justice (ECJ) said that where a worker's pre-arranged statutory holiday coincides with a period of sick leave, the Working Time Directive (the Directive) requires the employer to allow the employee, on his/her request, to reschedule his/her annual leave to a time when he/she is not off sick. But neither the Employment Tribunal (ET) nor the EAT agreed with NHS Leeds' interpretation of Pereda.

At about the same time as the EAT delivered its Judgment in the Larner case, it considered the Fraser case. Mrs Fraser was on sick leave for two years. She was then certified as fit to return to work but she did not actually return to work because her employer could not find a suitable role. Her employer, however, started to pay her normally as though she had returned while it looked for suitable work for her. After a year in limbo waiting for a suitable role to arise, Mrs Fraser was dismissed. She claimed a payment in lieu of her holiday for the two holiday years when she had been sick. The President of the EAT said that she was not entitled to a payment in lieu of that holiday because her holiday entitlement had expired - she had not requested her holiday (whether during her absence or on her return) and so, in accordance with the Pereda decision, she was not entitled to a payment in lieu on termination.

The Fraser and Larner EAT decisions appear to be contradictory. However, the CA in Mrs Larner's case said that the Fraser decision was not relevant to Mrs Larner's circumstances because Mrs Fraser had actually returned to work (in the sense that she had been certified as fit to return) before her dismissal, even though she had not actually done any work. At the time of her dismissal she had therefore had the opportunity to request, and to take, the leave that had accrued from the previous holiday years. Mrs Larner, on the other hand, was dismissed while she was off sick and as she did not have the opportunity due to her sickness to take the leave it had to be carried over, or, in Mrs Larner's case, paid in lieu on termination.

Unfortunately for employers, the case leaves some questions still unanswered.

  • Under the Working Time Regulations (WTR), there are two tranches of statutory leave: the 20 days as originally provided under the WTR when they became law in 1998 (Regulation 13 Leave) and the additional 1.6 weeks' leave that the government introduced in 2007 to cover in effect bank holidays (Regulation 13A Leave). Regulation 13 Leave is required by the Directive but Regulation 13A Leave is not. The current string of cases relating to holiday and sickness absence have been decided with reference to the Directive. However, as Regulation 13A Leave is outside the Directive there is a strong argument that the principles, such as that in the Larner case, only apply to the Regulation 13 Leave. There is therefore a strong argument that employers currently do not need to allow carry over of the Regulation 13A Leave, or of any additional contractual entitlement.

In the Larner case, the parties asked the CA to confirm whether this was the case or not, but the CA declined to do so. So while the CA started its Judgment saying that it is beneficial to ensure that '...as far as possible, the legal rules are certain, clear and accessible by the people for whom the rules were made' it ended it by saying it was 'nervous' about offering any further guidance on the issues!

  • There is a question mark over whether, and to what extent, businesses can limit the amount of holiday entitlement that employees returning from sick leave can carry forward. The European case of KHS SG v Schulte suggests that holidays should not be allowed to be carried forward on an unlimited basis and that carry over could possibly be limited to a period between 12 and 15 months.

Clearly the above cases all sit awkwardly with the WTR which do not allow any carry over of leave. However, in the Larner case, the EAT said that the WTR could be amended to be read in light of these principles. The CA added new drafting which mean that the general principle in the WTR that annual leave has to be taken in the year in which it accrues does not apply where the employee "was unable or unwilling to take it" because of sickness absence.