The House of Lords’ judgment in June 2009 is the end of the road for the Stringer litigation. The group of Revenue workers involved have established their right to accrue holiday entitlement under the Working Time Regulations, despite being off sick during the relevant period. However the decision has done little to resolve the practical problems that arise when workers seek to enforce this right.
Once upon a time…
The story began many years ago when four employees of what was then the Inland Revenue claimed that they had been denied their statutory holiday entitlement under the Working Time Regulations. In most cases the claim was for accrued statutory holiday pay due on their dismissal, when they had been off sick throughout the current holiday year and therefore unable to take any holidays. They claimed payments under regulation 14, which sets out a formula for the calculation of the payment due for accrued but untaken holiday pay following a worker’s dismissal. In one case however an employee had sought to take her statutory holiday entitlement while she was still on sick leave, and the Revenue had refused to allow her to do so.
The employees brought their claims under the Working Time Regulations, but some also relied on the Employment Rights Act, which provides a mechanism for recovering unlawful deductions from wages.
There were therefore three main issues that the courts dealing with these cases had to consider:
- Are workers entitled to be paid for accrued statutory holiday leave on dismissal when they have been off sick for the whole or a part of the relevant leave year?
- Are workers entitled to take statutory holidays while still on sick leave?
- Are workers entitled to enforce their rights to statutory holidays under the Employment Rights Act as well as the Working Time Regulations?
By early 2004, the claims had reached the Employment Appeal Tribunal (EAT) which answered all three questions in the affirmative. That was mainly because it was following earlier decisions of the EAT on similar facts. Because there was no Court of Appeal authority on these points, rather than providing a fully reasoned decision, it gave permission to appeal.
In April 2005, the Court of Appeal reversed the decision of the EAT on all three points. The employees then appealed to the House of Lords. It decided that it needed help from the European Court of Justice (ECJ) on the interpretation of the Working Time Directive, with which the Working Time Regulations must comply. So, it referred the first two questions to the ECJ. In January 2009, the ECJ came back with an answer in essence agreeing with the EAT. All the House of Lords therefore had to do on the first two points when the case came back to them later in 2009 was to restore the decision of the EAT.
The third question – about the correct jurisdiction for enforcing the right to paid statutory holidays – was not referred to Europe, as it was a domestic matter. The whole of the House of Lords judgment is taken up with dealing with this point and after a lot of complicated reasoning, it came down on the side of the EAT on this point too.
That is the story. In order to understand the practical implications, we must look at each of the questions in more detail, and fill in some additional background.
Accrual of holiday leave
Stringer at its most basic is about what happens to a worker’s holiday entitlement when he or she is dismissed after being off sick throughout the whole of the current holiday year. Mr Ainsworth, who gave his name to the litigation before his case was settled, claimed the princely sum of £16.14 for the leave year in which he was dismissed. But the underlying principle was important enough for both sides to fight it all the way up to the House of Lords.
The Court of Appeal suggested that the scheme of the Working Time Regulations was to protect workers from the risks of over-work, so it did not make sense for workers to have the right to take paid holidays when they were not actually working. The ECJ put paid to that argument, ruling that the right to paid statutory holiday was not something that a worker should be deprived of because of sickness.
Normally statutory holidays do not accrue in the usual sense of the word, but if a contract comes to an end the Working Time Regulations provide a mechanism for compensating a worker for untaken leave in the current holiday year by applying a simple formula. It is now clear that a worker who has been off sick for the whole or part of a holiday year is entitled to the same payment as any other worker on dismissal.
Taking holiday while off sick
The position is more complicated if, as will usually be the case with long-term sickness, the period of sick leave straddles more than one holiday year.
The most obvious solution would be to allow workers to carry forward statutory holiday entitlement, and either allow them to take it once they have returned to work, or to claim the equivalent amount in lieu on termination of their contract. However the Working Time Regulations clearly state that statutory holiday can not be carried forward (see regulation 13(9)) which would suggest that the British solution must be to allow workers holidays during a period of sick leave.
That was what one of the employees in the Stringer litigation tried to do, based no doubt on the example of three employees who did just that in the earlier case Kigass Aero Components Ltd v Brown. The ECJ appears to have accepted that this could be an appropriate mechanism for ensuring that sick workers did not lose their rights. This led the House of Lords to allow the reasoning of the EAT, based on the Kigass decision, to stand.
The ECJ did however consider the option of carrying forward untaken leave in a reference from Germany (Schultz-Hoff v Deutsche Rentenversicherung Bund) which was heard at the same time as the Stringer reference. Schultz-Hoff was about the German equivalent of the Working Time Regulations, which rather than prohibiting carrying forward altogether, allows this for a limited period into the following leave year. However Gerhard Schultz-Hoff, whose absence spanned two leave years, was not able to return to work before the end of this additional period, and ended up being dismissed on health grounds. The ECJ ruled that he should have been compensated not only for the holiday entitlement that had accrued during the current leave year, but also his entitlement from the previous year.
Putting these decisions together, therefore, the fundamental principle seems to be that workers should not be deprived of their statutory holiday entitlement due to sickness. As we will see later, it is still not clear exactly how this principle will be translated into practice in the UK.
Using the Employment Rights Act
The House of Lords has opened the way for workers to use the Employment Rights Act to enforce their rights, as well as the parallel provisions of the Working Time Regulations. But what difference does this make?
The answer lies in the time limits. Under the Working Time Regulations the time limit is three months from each infringement. Under the Employment Rights Act, it is possible to claim in respect of a series of unlawful deductions from wages up to three months from the date of the last deduction in the series. The House of Lords has said that non-payment of statutory holiday pay counts as an unlawful deduction for these purposes.
Suppose a worker has been off sick for a number of holiday years, and, being exceptionally well-advised, puts in a separate request to take his or her statutory holiday entitlement during each successive leave year. The employer, failing to anticipate the decision of the House of Lords in Stringer, tells the worker that there is no such entitlement. If a claim under the Working Time Regulations were the only option, the worker would have to bring a separate claim each year. On the other hand, if a claim under the Employment Rights Act were made, it would be possible for the worker to wait until the employment ended, and then argue that the non-payment of accrued holiday pay on termination was the last in a series of unlawful deductions from wages stretching back throughout the period of sick leave.
Claims for the current leave year
There is now no doubt that employers must, if asked, allow sick workers to take their statutory holiday leave during the current leave year. There appears to be no reason in practice why they should not, by agreement, allow workers to carry forward their leave, or make a payment in lieu to extinguish the employer’s liability where the sickness is likely to last throughout the holiday year. Although neither approach is sanctioned by the Regulations, claims based on what could amount to a technical breach of the Regulations are likely to be rare.
It is also clear that where workers are dismissed, payment must be made for statutory holiday pay accrued in the current leave year even in cases where they have been absent on sick leave throughout that period.
Claims for previous leave years
The position for previous leave years is more complicated, particularly because the Court of Appeal’s decision in the Stringer litigation, which has stood for three years, turns out to have been completely wrong.
Whether an employer is liable to pay out for holiday entitlement in previous years will depend in part on whether the worker has asked to take leave and been denied. It will also depend on the timing of any claim to the employment tribunal, and the jurisdiction under which the claim is brought.
Judging by two EAT decisions which pre-date the EAT’s decision in Stringer, it will not always be necessary for workers to ask for their entitlement. For example in Canada Life Ltd v Gray and Farrar the EAT upheld claims for holiday pay going all the way back to the date the Working Time Regulations were implemented. That was a case where the workers appear not to have asked for their leave, but the employer’s insistence that the claimants did not have the status of workers (and hence were not covered by the Working Time Regulations) would have made any such request futile. However it is at least arguable that the denial of the right to take holiday was not the same as the failure to make a payment in lieu of untaken holiday due on the termination of employment, and hence there had been no series of deductions from wages for the purposes of the Employment Rights Act.
It is not clear whether the House of Lords’ decision, influenced as it is by the ECJ’s reasoning, applies just to the original four week entitlement conferred by the Regulations when first implemented, or whether it also extends to the additional eight days to which workers have been entitled since April 2009. The safest course is to assume that all statutory leave should be treated in the same way, although the regimes for the two types of leave are slightly different.
In some circumstances it may be difficult to work out how much holiday pay should be paid for each week of entitlement. The amount due under the Working Time Regulations is calculated by reference to the definition of a week’s pay in the Employment Rights Act. That definition may not always be easy to apply were a worker is no longer in receipt of full pay when the request to take holiday is made.
Carrying forward leave
The ECJ accepted that carrying forward leave was not the only way of ensuring that leave is not lost and said that the Directive also permits allowing workers on sick leave to take paid annual leave while they are still off sick. There therefore appears to be no reason – even in the public sector, where the Directive is directly effective – why employers should be compelled to allow workers to carry forward leave as an alternative.
There may however be some exceptions, for example where it is not possible for a worker to take holiday leave during the current year because he or she is too ill to request it. On some occasions it may also suit both parties to allow the worker to carry forward entitlement.
It is obvious that these developments will provide added encouragement for employers to manage long term sickness proactively. It would also be worth checking that policies and contracts correctly reflect the law as stated by the House of Lords, and exploring the options for addressing the risk of back-dated claims.
Canada Life Ltd v Gray and Farrar - see original document