The EAT has confirmed, in the case of Sood Enterprises Ltd v Healy, that the right to carry over annual leave which a worker has been unable to use due to sickness absence is limited to the basic right to four weeks’ leave in Regulation 13(1) of the Working Time Regulations 1998 (“WTR”). There is no automatic right to carry over the additional leave of 1.6 weeks provided for by Regulation 13A, unless there is an agreement to this effect between the worker and the employer.

Since the decision of the ECJ in the case of Stringer and others v HMRC, and subsequent cases, it has been clear that employees continue to accrue their holidays whilst absent on sick leave, and can carry them forward from one leave year into the next, to take upon their return (or be paid in lieu upon termination), if the reason they have been unable to take them in the relevant leave year is because of their sickness absence. However, as many of these cases have been decided under the European Working Time Directive, it was arguable that the rulings only applied to the minimum 4 weeks of leave provided for under the Directive (replicated under Regulation 13(1) of the WTR), and not the additional 1.6 weeks provided for in the UK under Regulation 13A of the WTR.

In this case, H, an employee of Sood Enterprises, had a stroke in 2010 and, following a period of sick leave, resigned from his employment on 6 June 2011. H was entitled to the minimum 28 days’ annual leave each year under his contract. Because H’s illness prevented him from taking all his leave in 2010 and 2011 (he had 17 days accrued and unused from 2010, and 14 days from 2011), he asked for a payment in lieu on termination of his employment. The employer refused, and H brought a claim for unpaid wages before an Employment Tribunal. The Employer argued that if H was entitled to carry-over his untaken leave from 2010 and be paid for it, then it should be restricted to the four weeks’ basic leave in Regulation 13(1), and not the additional 1.6 weeks under Regulation 13A.

The Tribunal initially upheld H’s claim based upon an entitlement to carry forward the full 5.6 weeks of leave, however this decision has now been overturned on appeal to the EAT. The EAT has confirmed that the additional 1.6 weeks’ statutory annual leave cannot be carried over into the next leave year, unless there is a ‘relevant agreement’ to this effect in accordance with Regulation 13A(7). There was no such agreement between H and his employer. Therefore, H was only allowed to carry forward (and receive pay in lieu for) 9 days, rather than 17, from 2010.

Impact for Employers

  • This decision provides welcome clarity for employers that if employees are unable to use their full annual leave due to sickness absence, employers need only allow for carry-over of the minimum 20 days under Regulation 13(1) of the WTR, unless they have specifically agreed to allow for carry-over of the full statutory entitlement of 28 days (or even additional contractual holidays).
  • Some employers may choose to provide for carry-over of full contractual annual leave in an annual leave/sickness absence policy. If employers intend to limit carry-over to 20 days, it would be helpful to state this in the relevant policy also, to avoid any confusion or dispute with employees when the issue arises.