In January 2009 the European Court of Justice ruled that employees accrue statutory holiday while off sick, but left open several questions as to how this works under UK law. The House of Lords' judgment has now been published but unfortunately fails to address most of those questions.

The decision does confirm that claims for statutory holiday pay can be brought as a deduction from wages claim in addition to a working time claim. Wages claims have more generous time limits as they can be brought within three months of the last in a series of non-payments, whereas a working time claim must be brought within three months of each non-payment.

Because the parties reached agreement on how the ECJ's ruling should apply to the particular facts of the case, their Lordships simply overruled the Court of Appeal and restored the Employment Appeal Tribunal's orders without discussing how the right to leave during sickness works in practice.

As a result there are now only EAT authorities on a number of issues. These may well be subject to future challenge at a higher court (particularly the ability to claim pay in lieu of historic untaken holiday), but the position would now seem to be:

  • employees accrue the right to paid statutory holiday during sick leave (however long)
  • UK law permits employees to take statutory holiday during sick leave, although employers can refuse specific requests by giving the required notice  
  • UK regulations do not permit carry over of statutory holiday, but the ECJ decision says this should be permitted where an employee has been unable to take his leave during the holiday year due to sickness. A future case will have to determine whether this exception can be read into the UK regulations (in which case all employers should permit such carry over now) or whether they would have to be amended (in which case only public sector employers may be affected now).

A future case will also have to determine when employees will be treated as having been unable to take their leave in the holiday year. Employees usually will not know in advance they will be off sick, so if they have untaken entitlement and are off sick at the end of the leave year, will they be entitled to carryover if the employer refuses to allow holiday during sick leave? What if the employee is mentally incapable of serving the necessary notice to take holiday - or incapable of a minimum level of rest because he is undergoing intensive inpatient treatment or has a seriously debilitating condition?  

  • employees who take holiday during sick leave but are not paid can bring claims while employed, with time running from the date of non-payment or the last in a series of non-payments
  • where an employer has a policy of prohibiting employees from taking paid holiday during sick leave and an individual employee is off sick for almost all of the leave year so cannot take his holiday: (a) the employee could have the right to carry over his leave for as long as the policy continues and he remains sick, as discussed above; and (b) the employee may be entitled to pay in lieu of his unused entitlement from the current and previous years; EAT authority suggests this right can only be exercised after the employment has ended and therefore will depend on there being a non-payment or last in a series of non-payments within the three month time limit  
  • employees who have failed to but could have taken holiday entitlement in a leave year cannot carry over their entitlement to future years; EAT authority suggests that they may nevertheless be able to claim pay in lieu of unused entitlement from the current and previous years after their employment has ended, again subject to there being a non-payment or last in a series of non-payments within the three month time limit  
  • pay in lieu ought probably to be calculated at the rate of pay applicable at the point of accrual, although there is no clear authority on this  
  • it is likely that the same principles apply to the additional 1.6 weeks entitlement under UK law as to the four weeks' holiday entitlement under EU law. Employers will still be able to provide that additional contractual holiday does not accrue during sick leave, subject to the need to avoid disability discrimination, although the administrative burden may be too high.  

Employers should:

  • consider allowing requests to take holiday during sick leave and giving notice requiring long-term sick employees to take accrued holiday entitlement in the last few weeks of the holiday year. If there are no further actionable non-payments from now on, claims for the historic series of non-payments should quickly be out of time, on the basis of current authority (although this could be challenged by arguing that, as pay in lieu for historic years can only be claimed on termination, the non-payment should be treated as taking place on termination)
  • review employment terms relating to holiday and sickness entitlements. and consider whether changes are needed to contractual sick pay or PHI entitlements to provide that these count towards holiday pay for holiday taken during sickness  
  • consider managing sickness more robustly.  

Inevitably some employers will also consider whether to reduce sick pay entitlements to absorb the additional holiday costs and may start to dismiss for long-term absence at an earlier stage. (Stringer v HMRC, HL)