The European Court of Justice has ruled that employees on long-term sick leave continue to accrue their statutory entitlement to four weeks paid annual leave. The ruling provides that employees must be allowed to carry over their entitlement to paid annual leave after they return to work, even if they did not work at all, due to illness, during the leave year. The ruling further provides that on the termination of their employment, employees who did not have the opportunity to exercise their entitlement to four weeks paid annual leave by reason of illness are entitled to receive payment in lieu of their statutory leave entitlement.

Employers will be concerned at the potential cost increasing effects of last week's Judgment in what is known as the "Stringer"* case. In summary, the ECJ ruled that the correct interpretation of the EC Working Time Directive in so far as it relates to an employee's entitlement to not less than four weeks paid annual leave is as follows:

An employee on sick leave, who is unable to take annual leave, by reason of their illness, must be allowed to take their annual leave at a later date, even after the end of the leave year or any agreed carry over period;

Any annual leave, accrued by reason of the employee being unable to exercise their entitlement by reason of illness, must be paid in lieu on termination. This entitlement arises regardless of whether or not the employee has worked at all during the leave year.

There is no obligation on member states to agree to an employee's request to take paid annual leave during a sick leave period.

In this jurisdiction, the Organisation of Working Time Act 1997 links the entitlement to paid annual leave with hours worked and therefore employees on long term sick leave do not currently accrue an entitlement to paid annual leave under Irish law. This provision now seems to be incompatible with EU law and the Government may be required to introduce amending legislation. Under the principle of direct effect, the Stringer Judgment is binding on the public sector immediately. Employers in the private sector would be well advised to robustly manage their employees on long term sick leave and consider the potential cost increasing impact of this Judgment which we can expect will be followed by the Labour Court, who have jurisdiction to deal with disputes under the Organisation of Working Time Act.

* Judgment was delivered by the ECJ on the 20th January 2009 in the joined cases of Stringer and Others –v- Her Majesty's Revenue and Customs (C-250/06) and Schultz-Hoff –v- Deutsche Rentenversicherung Bund (C-520/06)