The ECJ has held, in the case of Stringer v HMRC, that workers on long-term sick leave do not lose their right to paid annual holiday under the Working Time Directive, even when they have been absent due to illness for the whole of a holiday year.

The ECJ held that:  

  1. It is for national law to determine whether workers can take annual leave during a period of sick leave. The House of Lords must now decide this issue by interpreting the Working Time Regulations (WTR). The Court of Appeal in Stringer held that the WTR do not permit a worker to take annual leave during a period of sick leave and if the House of Lords overturns the Court of Appeal's decision, there may need to be amendments to the WTR.
  2. The right to paid annual leave continues during sick leave and the worker must be allowed to take it when they return to work and to carry it over if they are off sick for the whole of the leave year. Further amendments to the WTR may be necessary on this point because regulation 13(9) of the WTR only permits holiday to be taken in the year it accrues and therefore may be contrary to the Directive (depending upon the decision reached by the House of Lords as to whether the WTR allow holiday to be taken during sick leave).
  3. If the employment terminates while the worker is still on sick leave, they must be paid in lieu of their annual leave entitlement at their normal rate of remuneration, even if they have been off sick for the whole of the holiday year.

Impact on employers

The case now returns to the House of Lords for a final decision in which the following issues will arise:

  • Can workers on long-term sick leave nominate periods of sick leave as paid annual leave or do they have to wait until after their sick leave to take accrued annual leave?
  • If workers can nominate sick leave as annual leave, can employers use their rights under the WTR to make employees use up their annual leave in order to prevent large amounts of leave accruing?
  • How far back does the right to accrued but untaken leave go?  

Whatever happens, there will be additional costs for any business that has not been allowing employees to accrue annual leave during sick leave. A more interventionist approach to the management of workers on long-term sick leave could prevent costs building up but the counter-balance is the risk of claims for unfair dismissal and disability discrimination.

Workers in the public sector can rely on the ECJ decision immediately and will be able to carry over unused statutory entitlement that they have been prevented from taking due to sickness and claim a payment in lieu of untaken leave if their employment terminates.

Rights for workers in the private sector will only be clarified following the House of Lords' judgment. In the meantime, employers should treat workers on long-term sickness absence as continuing to accrue the minimum statutory annual leave and having the right to be paid for it if they are dismissed.

This decision relates only to the paid four-week annual entitlement under the Directive. It does not apply to the additional statutory leave under the WTR (currently 4 additional days and 8 additional days from 6 April 2009). Employers therefore have a choice as to how to deal with additional statutory leave and with contractual holiday entitlement that is in excess of statutory annual leave. They will need to set out the rules clearly in employment contracts and policies.