For many years employers have been left tearing their hair out when trying to deal with issues surrounding the relationship between holiday accrual and sick leave. Does holiday accrue during sick leave? Can a worker take holiday whilst on sick leave? If a worker is prevented from taking holiday due to sickness, can they roll their entitlement over? Finally, employers have been offered some clarity in the shape of HM Revenue and Customs v Stringer and others. Unfortunately, this 'clarity' probably means the hair tearing will continue – good news for wig makers, bad news for employers (and their hairdressers).

Under the Working Time Regulations 1998 (WTR), workers are entitled to accrue 28 days' holiday per year (remember it went up in April). However, there is no right for a worker to roll that entitlement over to the next holiday year unless the contract of employment says so.

The case of Stringer was part of a long running series of hearings. Last year, the European Court of Justice found:

  • holiday continues to accrue during sickness absence;
  • holiday can be carried over if a worker on sick leave is prevented from taking holiday;
  • even if a worker has been on sick leave for the whole or part of the holiday year, they have a right to be paid in lieu of their accrued entitlement on termination of their employment.

The case was sent back to the House of Lords who have now held:

  • The right to accrue holiday under the WTR continues throughout any period of sickness. You can reduce your exposure by restricting accrual to statutory entitlement rather than contractual entitlement.
  • Workers can now claim for accrued but untaken holiday as an unlawful deduction of wages as well as a breach of the WTR. An unlawful deductions claim could allow an employee to claim for a series of deductions. For example, if a worker has been absent for 5 years and has not received payment for accrued but untaken holiday or been allowed to roll that entitlement over, an unlawful deductions claim would allow the employee to claim that the non-payment forms part of a series of deductions equating to 5 years' worth of claim - ouch!

The case clarifies issues to an extent but ultimately still leaves us in limbo as the findings of this case will require an amendment to the WTR. In the meantime, we will have to try and interpret this judgment as best as we can. We recommend that you review your contractual documentation and start properly questioning the merits of keeping workers on the books when they are likely to be absent for substantial periods of time.