In NHS Leeds v. Larner1 the Court of Appeal has provided useful guidance for employers about whether workers who have been absent on long-term sick leave are able to carry over their unused annual leave entitlement.
Facts of the Case
Larner involved a clerical officer working for the NHS who had been on sick leave for the entire 2009/10 leave year. She was dismissed early in the following leave year while still off sick. She did not take any annual leave throughout this period or ask to do so. She did not seek to carry over her annual leave into the following leave year. On her dismissal she requested payment in lieu of her unused statutory holiday entitlement for the year 2009/10. The question before the Court of Appeal was whether she was entitled to receive this payment. The Employment Tribunal and the Employment Appeal Tribunal (EAT) had both held that she was so entitled.
Under Article 7 of the Working Time Directive2 (the Directive) member states must ensure that workers are entitled to paid annual leave of at least four weeks. The Directive is implemented in the UK by Regulations 13 to 16 of the Working Time Regulations 19983 (the Regulations). The Regulations provide for an extra 1.6 weeks’ paid holiday in addition to the four weeks provided for under the Directive. There is no provision for annual leave to be carried over under the Regulations. Payment in lieu of untaken annual leave can only be made on termination of employment.
Recent Case Law
There have been several high-profile decisions about holiday pay and sick leave in recent years, both in the domestic and in the European courts. In his leading judgment in the Larner case Lord Justice Mummery summed up the state of the law in light of the previous cases as follows.
- A worker absent on sick leave may accrue entitlement to paid annual leave.
- If a worker on sick leave is unable or unwilling to take paid annual leave because of sickness, paid annual leave must be granted in another period, if necessary beyond the leave period concerned.
- A worker absent on sick leave throughout a leave year does not lose entitlement to paid annual leave at the end of that year, or the right to take paid annual leave at another time when the worker is not sick.
- The carry forward period allowed for paid annual leave must be substantially longer than the annual leave reference period.
- Any payment in lieu of annual leave on termination must place the worker in the same position as if he/she had taken paid annual leave during employment.
The main question in Larner was whether the fact that Mrs Larner had not requested annual leave, or asked to carry it over, during her sickness prevented her from being entitled to payment in lieu on termination.
Lord Justice Mummery dismissed the appeal and stated the law in Mrs Larner’s case was clear and certain in that:
- Mrs Larner was entitled to paid annual leave in the leave year 2009/10;
- she was prevented from taking her paid annual leave because she was sick;
- she was entitled to carry her untaken paid annual leave forward to the next leave year without making a prior request to do so; and
- as her employment ended before she could take the carried-over leave she was entitled to payment in lieu.
Lord Justice Mummery also agreed with previous European court findings that it was possible to interpret the Regulations to be compatible with Article 7 of the Directive. Unfortunately he declined to comment on whether employers can distinguish between the four weeks’ statutory holiday available under the Directive and the extra 1.6 weeks’ holiday provided for in the Regulations.
The judgment in this case provides a useful summary of the legal position in relation to sick leave and statutory holiday.
Where there was some ambiguity previously this decision now makes it clear that employers should allow workers to carry over unused statutory holiday entitlement where they have been on long-term sick leave. If their employment ends before they can take the carried-over leave, they should be paid in lieu. It is not necessary for employees to have requested to take leave or to carry it over. This is the case for private and public sector employees as the Regulations can be interpreted to be compatible with Article 7 of the Directive. This could prove expensive for employers that find themselves dismissing employees on long-term sick leave.
It is still not clear whether this approach should be applied to the full holiday entitlement of 5.6 weeks under the Regulations or just to the four weeks provided for under the Directive. A couple of recent European decisions suggest that this approach should only apply to the compulsory four weeks. The Government has proposed amending the Regulations to clarify the position on holiday and sick leave, and has indicated that the proposals will not apply to the additional 1.6 weeks. We should have clarity on this point soon.
An area that Larner does not cover is the extent to which the carry-over period for annual leave can be limited. The judgment reiterates that the carry-over period must be substantially longer than the relevant annual leave reference period, but provides no further guidance as it was not a relevant issue in the case. Employers will undoubtedly welcome certainty in this area and it is hoped that the Government will deal with this in its proposed amendments to the Regulations.