Summary and implications

With the summer holiday season coming to an end, the time is apt to return to the issue of annual leave entitlement and sickness leave.

The words “Springer”, “Pereda” and “entitlement to carry forward” sum up the ECJ’s willingness to interpret the Working Time Directive as granting a right to carry over unused holiday where a worker has been absent on sick leave. However, this conflicts with our domestic law (the Working Time Regulations 1998 (WTR)) which, as currently drafted, generally do not permit carry over of unused holiday. The law is in a state of flux and to add to this uncertainty, the House of Lords and Employment Tribunal have determined that holiday can be carried over into the new holiday year in certain circumstances.

July 2011 saw the emergence of an Attorney General (AG) decision at the ECJ level and an EAT decision which confirmed that:

  • The right to carry forward annual leave into the new holiday year does not exist indefinitely; and
  • A sick employee, who has not previously requested annual leave in an entire holiday year, was entitled to a payment in lieu of the entire holiday year’s annual statutory entitlement on termination.

Although these findings provide a degree of guidance on the issue of holiday entitlement and sickness, they do not provide full clarity on the law, nor remove the conflict between EU law and UK domestic law. As such, our advice continues to be as follows:

  • If a worker is on sick leave, but has not requested annual leave, then upon return to work, s/he has lost that entitlement;
  • If a worker is on sick leave, and requests annual leave, then s/he should be allowed to take such leave;
  • If a worker becomes unfit to work during his/her holiday, s/he may take that as sick leave;
  • If a worker returns from sick leave, requests annual leave, but cannot take it in the current holiday year, s/he should be allowed to carry it over into the next holiday year.

Limited time to carry over accrued but unused holiday

The AG in the ECJ issued a preliminary view in the German case of KHS AG v Schulte which advised that, where an employee (who has been on sick leave) returns to work too late in the holiday year to take accrued holiday, s/he should be allowed to carry it over to the next holiday year. However, the right to carry holiday forward is limited in time.

The AG suggested that a right to carry over holiday which is shorter than six months may not be sufficient; however, a period of up to 18 months may be.

Although the AG’s decision is not binding at this stage, it helps us to anticipate what might be the ECJ’s next move in relation to annual leave entitlement where an employee has been on sick leave.

On termination an employee is entitled to payment in lieu of all unused holiday even if s/he did not request holiday

The EAT ruled in NHS Leeds v Larner that an employee, who had been on sick leave for an entire holiday year and had not requested nor taken any holiday during that year, was entitled to payment in lieu of that year’s unused holiday on termination of her employment.

This finding is in line with the provisions in the WTR which provide for a payment in lieu of accrued but untaken holiday on termination of employment and can be distinguished from cases where the employee’s employment continues. In that case, if the employee does not request to take holiday then s/he forfeits that holiday at the end of the holiday year and cannot (by virtue of the WTR) carry over holiday into the new holiday year.

Government proposals: consultation on modern workplaces

In an attempt to see if EU law and UK domestic law can be reconciled, the Government opened a consultation process, which closed on 8 August 2011, and which proposed the following:

  • Allowing carry over of four weeks’ statutory holiday entitlement where a worker is unable to take holiday in the current holiday year;
  • If a worker falls sick on holiday which forms part of the four week statutory entitlement, the worker may reschedule, but if it cannot be taken in the current holiday year then s/he should be allowed to carry it over;
  • Allowing employers to insist that any unused holiday due to sickness is taken in the current holiday year; or
  • If the employer had good business reasons to do so, require the worker to carry forward holiday.

What next?

Although the AG, the EAT and the Government appear to be trying to clear up the position on sickness leave and annual leave entitlement, there continues to be a lack of clarity in this area and the conflict between the EU law and UK domestic law continues.

From a practical perspective you should be aware of the common scenarios which might arise in your workplace and consider how best to deal with them in a way which reflects the current position (as outlined above) and in a way which is consistent. Further, think about whether your policies and contracts of employment reflect the current position too.

We anticipate that once the Government has reviewed the responses to its consultation it will issue guidance outlining its intention and plan to address the conflict between the EU law and UK domestic law. Therefore, this topic is likely to continue being the subject of our briefings in the future – watch this space!

In the workplace: common scenarios

We list below a few common scenarios involving sickness absence and annual leave which occur in the workplace and provide guidance in each scenario:

  • A worker who requests, but is unable to take holiday during sick leave is entitled to take his or her holiday on their return to work, preferably in the remaining holiday year.
  • If it is not possible to take annual leave in the remaining holiday year, the worker should be entitled to carry over their holiday.
  • However, remember, according to the AG, the right to take annual leave on return to work does not continue without limit in time. The right to carry over annual leave may extinguish after 18 months following the end of the holiday year.
  • If a worker has been absent due to sickness and has not requested annual leave then he or she forfeits that leave.
  • If, on termination, (i) a worker has been absent due to sickness, (ii) has not requested annual leave, and (iii) seeks payment in lieu of accrued but untaken holiday, then s/he should be paid for that untaken holiday even if they did not previously request annual leave.