There has been a hive of activity in the area of holiday and sickness absence during the last 18 months. Employers are quickly having to get used to the concept that workers accrue holiday while on long-term sick leave and that workers can reclaim holiday that is lost due to sickness.

A re-cap of the case law

HM Revenue and Customs v Stringer and others 2009

The outcome - workers can accrue holiday while on sick leave

The House of Lords gave its ruling on the long-running case of HM Revenue and Customs v Stringer and others last summer. The case concerned five Inland Revenue employees who had brought various claims under the Working Time Regulations 1998 (the 'WTR') for holiday pay, even though they had been on long term sick leave and had exhausted their entitlement to contractual and statutory sick pay.

The main substantive issue in this case was whether workers who are absent on sick leave still accrue annual leave (under the WTR) and whether such leave should be carried over to the following leave year if the worker has not had the opportunity to take holiday while on sick leave. This issue was referred to the ECJ which gave its ruling in January 2009. Having gone back to the House of Lords, there are unfortunately still a number of questions outstanding. The key principles that have now emerged are:

- Workers on long term sick leave continue to accrue holiday even though their sick pay has been exhausted.

- Where a worker is unable or does not have the opportunity to take annual leave they will be entitled to carry it over into a subsequent holiday year. The House of Lords has not given guidance as to what "unable" means, however see the guidance given in the Pereda case.

- An employee can bring a claim for holiday pay as an unlawful deduction from wages claim within three months of the last in a series of deductions. Such claims are not limited to the previous holiday year and can therefore span back a number of years. Claims under the WTR are limited to the previous holiday year and so this is a significant change for employers.

- If an employer refuses the employee the right to take holiday while on sick leave, the employee is likely to have a claim. If the employer has refused the right for a number of years this claim can build up to the point where the employer has a large bank of unpaid holidays.

There are a number of unanswered questions following the House of Lords decision:

- It is unclear whether a worker must have actually sought to have taken the holiday in order to be owed holiday pay. It is unclear whether a worker who is on sick leave and has not requested any holiday is entitled to holiday pay. There is conflicting case law on this point.

- It is clear that upon termination of employment, a worker can now bring an unlawful deduction from wages claim for unpaid holiday accrued during sickness absence. It is not clear, however, if a worker is still in employment whether they can bring such a claim. The WTR strictly prohibit payment in lieu of holiday except on termination of employment.

- There is little clarity as to whether the outcome of this case extends to contractual sick pay or is limited to statutory.

There is clearly scope for much more litigation in this area. Unfortunately, this case may actually have a negative impact on a number of employees as employers are more likely now to dismiss those on long-term sick leave in order to avoid the cost of paying holiday pay. The incentive to introduce PHI schemes is also diminished.

Pereda v Madrid Movilidad SA (2009)

Workers can reclaim holidays lost by sickness

A landmark ruling by the ECJ has provided authority for the proposition that a period of sickness whilst on annual leave does not count towards the minimum period of holiday prescribed by the WTD. The WTD was implemented in the UK by the Working Time Regulations 1998, which currently provide for a statutory minimum period of 5.6 weeks paid annual leave.

Mr Pereda had arranged to take four weeks annual leave from his job with Madrid City Council, but unfortunately suffered an accident two weeks before this leave was due to begin.

The accident left him incapacitated for six weeks, meaning that his sick leave overlapped with his annual leave.

The court said that employees had the right to ask for statutory leave to be "reallocated" when it was spoilt by sickness.

This principle is likely to apply even if an employee becomes ill during a period of pre-arranged annual leave.

This judgment has also provided some clarification on a point left open by the House of Lords in the Stringer case. The House of Lords held that a worker had the right to carry over their accrued statutory holiday entitlement to the subsequent leave year, if they had been 'unable' or they 'had not had the opportunity' to take the holiday whilst they were on sick leave. However, no guidance was given on what 'unable' means.

In Pereda, the ECJ suggested that the sickness itself would make a worker 'unable' to take the holiday.

 Shah v First West Yorkshire 2010

UK tribunal decision - carrying over leave lost due to illness

The first UK case has come to light since the issue of carrying leave entitlement over to the next annual leave year, if prevented from taking it by illness, was raised by the two ECJ decisions last year.

Mr Shah brought a claim against his employers for four weeks' holiday which he had booked prior to breaking his ankle. His injury kept him off work for three months, including the time he was due to be on leave.

His employers refused his request to claim back the leave he had lost. The Tribunal ruled that Mr Shah was entitled to take the leave he could not take whilst he was injured in the following leave year.

Whilst this UK case was heard in the Employment Tribunal and is therefore not binding, it does suggest that the Tribunals are choosing to follow EU law despite UK legislation providing a grey area on the issue.

Rawlings v The Direct Garage Door Company 2010

UK tribunal decision - carrying over leave lost due to illness

The first UK case has come to light since the issue of carrying leave entitlement over to the next annual leave year, if prevented from taking it by illness, was raised by the two ECJ decisions last year.

Mr Shah brought a claim against his employers for four weeks' holiday which he had booked prior to breaking his ankle. His injury kept him off work for three months, including the time he was due to be on leave.

His employers refused his request to claim back the leave he had lost. The Tribunal ruled that Mr Shah was entitled to take the leave he could not take whilst he was injured in the following leave year.

Whilst this UK case was heard in the Employment Tribunal and is therefore not binding, it does suggest that the Tribunals are choosing to follow EU law despite UK legislation providing a grey area on the issue.

UK tribunal decision - holiday owed to long-term sick employee A Sheffield employment tribunal has ruled that an employee, who was off sick for more than a year before leaving his employer, was entitled to be paid his full holiday entitlement upon resignation because his absence from work had prevented him from taking his leave.

Following the Stringer case, the tribunal found Mr Rawlings, whose sickness absence lasted for the whole of 2005 and until he left the company in 2006, was entitled to be paid for the holiday he had been unable to take during the time off.

Conclusion

We will have to wait for further case law and/or amendments to the WTR before the situation is any clearer. BIS have provided guidance on the interaction between holiday and sickness following the Stringer and Pereda cases:

"The combined effect of the rulings is that a worker can choose to take their statutory annual leave at the same time as sick leave, or the worker can chose to take the missed annual leave at a later date. A worker who has missed out on statutory annual leave due to sickness, may be able to carry-over the missed leave to the next leave year."

Visit this website for further information: www.berr.gov.uk/Policies/employment-matters/rights/working-time/case-law

Unfortunately at this stage the guidance can't answer the outstanding questions following the ECJ decisions.

A number of cases which were stayed pending the outcome of the Stringer case are likely to be heard throughout 2010.

From the case law so far it would appear that employers are increasingly vulnerable with regard to employee claims in this area.

Employers need to make some policy decisions as to how they are going to handle requests from employees with regard to holiday and sickness absence.

Employers should take this opportunity to review their contracts of employment and sickness absence policies to ensure they comply with the case law and to identify any areas in which they may be at risk.