There has been considerable litigation regarding the holiday entitlement of workers on long-term sick leave. The recent employment tribunal case of Khan v Martin McColl suggests how such entitlement could be limited in practice.

As we reported in our October 2009 briefing, the European Court of Justice had previously ruled that workers continue to accrue holiday rights during periods of sickness and that workers who are “denied the opportunity to take … paid annual leave” because of their sickness should be allowed the take the leave at another time, even where that meant taking the leave in a subsequent leave year.

A subsequent decision of the House of Lords (now Supreme Court) found that failure to pay holiday pay can amount to a series of unauthorised deductions from wages under the Employment Rights Act 1996 (as well as a breach of the Working Time Regulations 1998), meaning that workers could potentially bring wages claims for payments in lieu of accrued holiday pay stretching back over a potentially unlimited number of previous leave years if their claim was brought in time in respect of the last deduction.

Mr Khan’s employment transferred to Martin McColl in 2007. In May 2008, Mr Khan went on long-term sick leave and remained on leave until his resignation in August 2009. He did not apply to take any holiday in 2008 or 2009. Upon termination of employment, the employer made a payment in respect of all the holiday Mr Khan had accrued in 2009 but no payment was made in respect of previous years’ accrued but untaken holiday. Mr Khan pursued claims for unauthorised deductions from wages.

The employment tribunal concluded that Mr Khan’s unauthorised deductions from wages claim was out of time. Their analysis was that there was no deduction from wages in respect of the 2009 entitlement (because such entitlement was fully paid upon termination) and therefore the last of any possible deductions occurred at the end of 2008 holiday year, meaning that any claim should have been lodged by the end of March 2009.

Had the employer failed to make a payment for the 2009 holiday entitlement, the claim in respect of a 2008 deduction would have been in time, as such non-payment would have been the last in a series of deductions allowing Mr Khan to recover the 2009 and 2008 holiday pay. However, paying the 2009 entitlement broke the series of deductions.

The employment tribunal also found that there had in fact been no deduction in 2008. The tribunal concluded that, because Mr Khan did not ask to take paid annual leave during 2008, he was not “denied” the opportunity to take the leave in that year; rather, he had the opportunity to take it, but did not request to do so. Mr Khan’s ignorance of his rights did not save him here. The employment tribunal appears to have concluded that this meant that there was no failure to pay as regards 2008 in any event.

This case is of interest to employers as it suggests that claims for holiday pay by long-term sick employees for previous holiday years can be defeated where the employee did not request to take the leave in the previous years and/or where the employer ensures that it makes a payment in respect of the final year’s accrued leave upon termination.

However, some considerable caution is needed; this case is a first instance decision that is not binding on other employment tribunals and was a case in which the employee was not legally represented. The employment tribunal’s analysis of the word “denied” is not without controversy and further litigation on the vexed issue of how holiday entitlement and sickness absence sit together can be expected. The case does, however, suggest that it will be prudent for employers to be prompt in making final holiday year payments upon termination.