Summary and implications

Regular readers of our briefings will be familiar with the “sickness absence/holiday rights” run of cases in recent years. New tribunal and, more recently EAT, decisions are coming thick and fast. Unfortunately, they are often inconsistent and may leave employers with less clarity than before.

This briefing is designed to help you understand the latest legal views on the holiday rights of sick workers and, more importantly, determine whether your practices are both commercially advantageous and legally compliant.

You may recall that, following thee ECJ and House of Lords’ decisions in the case of Stringer, we took the view that employers could adopt a “use it or lose it” holding position, i.e. only paying sick workers for annual leave which they have actually requested (except in the year of termination). We also discussed practical steps you could take to limit your financial exposure following Stringer. Recent judgments and developments may require a fresh look at your procedures and practices:

  • if you adopted a “use it or lose it” approach, we believe you can continue to maintain this attitude. The Court of Appeal is due to consider this issue in early 2012;
  • make sure your holiday request and sickness notification procedures reflect the fall-out from recent case law in the most advantageous manner. For example, require workers to notify and certify in the usual way any sickness during a holiday. Your policies do not need to include a reminder for sick workers to request annual leave. In the vast majority of cases, you have no legal duty to advise employees about their rights;
  • do you limit the carry over period in relation to sickness-related holiday? If not, consider making a limited (possibly 18 month) carry-over period an express term of your contract; and
  • consider how you deal with contractual holiday in excess of statutory annual leave. Consider also the risks and benefits of limiting payment and carry over in relation to holiday accrued during sickness to the minimum four week statutory leave.

Although the EAT is undecided on the issue, our view is that sick workers who would like to “take holiday” must make a formal request or lose the right to paid annual leave

Earlier this week, the EAT’s President handed down a judgment dealing with the question of whether a sick worker who has not requested to take annual leave in 2006-07 was nonetheless entitled to pay in lieu of such holiday when her employment was terminated in 2008. Finding against the worker and in favour of the employer, the EAT said: “...the ordinary rule is, as we have said, ‘use it or lose it’…”. And, whilst the EAT recognises the artificiality of the requirement for a formal notice from a worker who is not at work, it makes the sensible and critical point that this “merely reflects the artificiality of a period of long-term sickness counting as holiday at all”. Finally, if an absent, sick, employee wants to carry over accrued holiday, s/he must expressly ask to do so (Fraser v Southwest London St George’s Mental Health Trust). We understand that the worker is seeking leave to appeal to the Court of Appeal. We will keep you informed of any developments.

Alas, Fraser, is not the end of the story. Only three months earlier, another division of the EAT came to the opposite conclusion (NHS Leeds v Larner). This decision, which is very short on legal analysis, has been appealed to the Court of Appeal and is expected to be heard in early 2012. To see our detailed briefing on the decision in Larner, requested. click here.

We hold the view that Larner is wrong and that the EAT in Fraser is right. This is because it is strongly arguable that the provisions of the Working Time Regulations (WTRs), and to some extent the ECJ’s judgment in Pereda, establish that a worker’s entitlement to holiday pay depends on the giving of notice under regulation 15 WTRs. If the contract of employment or employment policies replace the regulation 15 requirements, then workers must comply with the employers’ requirements instead. We hope that this will be confirmed by the Court of Appeal in due course.

Click here to view table

Fraser v St George’s Mental Health Trust

The EAT made an additional important point in Fraser, namely that the right to holiday pay depends entirely on the right to leave. Clarifying previous legal inconsistencies, the EAT made it clear that a worker cannot be paid for more leave than s/he asks for. Except in the year of termination, a worker must request their full holiday entitlement, or lose pay in respect of any leave s/he has not requested.

Employers have no legal obligation to inform absent workers about their right to paid holidays or the need to make a formal request to take leave

The claimant in Fraser argued that her employer should have informed her of her right to paid leave, and the need to make a formal request in respect of it. The employer’s failure to do so, she asserted, amounted to breach of the duty of trust and good faith.

No, said the EAT. In most cases, an employer has no contractual or legal duty to inform sick workers of their right to take annual leave during sickness absence (see box). Therefore, failure to provide such information does not amount to breach of the implied duty of trust and confidence. This is partly because, on the facts, Ms Fraser’s case fell outside the remit of Scally (see box) but, more importantly, because “there can, absent particular circumstances, be no duty on an employer to advise his employees of their rights as a matter of general law”.

A view is emerging that workers cannot carry over untaken holiday indefinitely – but the jury is out on the permissible limit to carry-over periods

One of the most notable (and worrying) aspects of the ECJ’s decisions in Stringer and Pereda is the right workers have to carry-over accrued, untaken, holiday (at least under the Working Time Directive (WTD)). But, does this right persist for evermore? 

In Schultz-Hoff (the case heard by the ECJ together with Stringer) the ECJ rejected a three month carry over period and indicated that no limit to carry-over would be permissible. In KHS AG v Schulte, the Advocate General suggested that the WTD does not require indefinite carry over (and, by the same token, indefinite pay in lieu). The Advocate General opined that prolonged carry over (over a number of years) would not achieve the WTD’s health and safety purposes of enabling the worker to recuperate from the effort and stresses of that year. In her opinion, a minimum carry over period which ends 18 months after the end of the relevant leave year (i.e. effectively giving a worker up to two and a half years to use a year’s leave entitlement) would be consistent with the WTD, but a six month carry over period would not. The ECJ may, but is not obliged to accept the Advocate General’s opinion. We hope to have its decision in 2012.

In the UK, the Government’s consultation on revisions to the WTRs (Consultation on Modern Workplaces) proposes a one year carry over period. Firm proposals and draft Regulations are yet to be published.

Fraser and Scally

Ms Fraser’s alternative claim was based on Scally v Southern Health and Social Services Board, where the House of Lords held that an employer has an implied obligation to inform employees of contractual benefits which they can avail themselves of, where the following conditions are met:

  • the employment contract has been negotiated with a representative body or otherwise not with the individual;
  • a term of the contract confers a valuable right that is dependant on the employee taking certain action;
  • the employee cannot reasonably be expected to be aware of this term without it being drawn to his/her attention.

Ms Fraser’s case did not meet the conditions laid out in Scally.

Convention No. 132 of the International Labour Organisation

The AG in KHS AG v Schulte referred to this International Labour Convention, which itself recommends a period of 18 month holiday carry over from the end of the holiday year.

The ones that got away: what we still don’t know about sickness and holidays

Cases progressing through the tribunal system have discussed many of the issues which Stringer left unresolved. However, considerable uncertainty remains in relation to a number of issues. We make some practical suggestions in relation to those below.

  1. Does an employee on sickness absence accrue the right to four weeks’ leave and pay, 5.6 weeks’ leave and pay or the full contractual entitlement?

Stringer and some of the cases which followed it are concerned with rights under the WTD, were workers enjoy a statutory right to four weeks’ annual leave each year. It is therefore fair to say that these cases do not apply to contractual holiday rights in excess of statutory provisions.

As you know, the WTRs provide workers with a statutory right to 5.6 weeks’ annual leave. This raises the question whether the Stringer decision applies only to workers’ four weeks’ leave rights or the full 5.6 weeks. Some employers, for administrative and practical reasons, choose to apply Stringer to the full statutory or even contractual holiday entitlement. Others prefer not to do so.  

The ET in Adams v Harwich International Port took the view that Stringer applies to the full 5.6 weeks’ leave right. But, the UK Government takes the view that Stringer only applies to the minimum four weeks’ leave period. A similar view was taken by the Advocate General in Dominguez v Centre Informatique du Centre Ouest Atlantique. The ECJ is expected to give a final decision on this issue in due course.

  1. What is the rate of pay in respect of holiday accrued by a worker on sickness absence?

The ECJ in Stringer ruled that any payment in lieu of holiday accrued during sickness absence should be paid at a worker’s “normal remuneration” rate. The WTRs require payment on the basis of a “week’s pay”, which may vary depending on whether or not remuneration varies with the amount of work done or hours worked.  

In Chief Constable of Strathclyde Police v Lavery, a Scottish EAT decision that predates Stringer, a worker whose pay did not vary according to output or working hours was held to be entitled to his full contractual pay in relation to holiday taken during sickness absence. The EAT held that it was immaterial that, immediately before taking annual leave, the worker was paid contractual sick pay at the rate of 50 per cent of his normal salary.

More recently, the ET in Souter v Royal College of Nursing Scotland, held that a worker who was receiving PHI benefits was only entitled to holiday pay at that rate. In the ET’s opinion, the contract of employment was varied to provide for this new, lower salary level.  

We take the view that contracts of employment should spell out the rate of pay for sickness-related holiday. At the very least, this will cover any leave in excess of the statutory minimum.  

  1. Do the WTRs permit carry-over of untaken leave other than in the year of termination?

We have reviewed at least four inconsistent judgments on this issue and a number of creative attempts by tribunals to read words into the WTRs which allow for carry over other than in the year of termination. In light of these attempts and the Government’s plan to allow for carry-over we think it makes commercial sense to assume carry over is permitted, but a formal holiday request is needed. A ‘no carry-over in the WTRs’ argument should only run as an alternative to other, perhaps more convincing, arguments.