In Ireland, the Organisation of Working Time Act, 1997 links an employee’s entitlement to paid annual leave with hours worked. The 1997 Act requires an employee to actually work during a leave year in order to accrue annual leave, with the exception of protected leave (e.g. maternity leave, carer’s leave). A leave year is defined as a twelve month period, and where it is not otherwise defined by the employer, it is usually regarded as running from April to March. Therefore, under Irish law, employees who are on long term sick leave are not entitled to paid annual leave under the 1997 Act in respect of any such period of absence.

This position now seems to be incompatible with EU law as a result of the European Court of Justice (ECJ) judgment in the related cases of Schultz-Hoff and Stringer delivered in January 2009, and Pereda in September 2009.

In Schultz-Hoff and Stringer, the ECJ ruled that the correct interpretation of the 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 his/her illness, must be allowed to take 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 his/her entitlement due to illness, must be paid in lieu on termination of employment. This entitlement arises regardless of whether or not the employee has worked at all during the leave year. However, a rule which provides for the loss of the right to paid leave at the end of the leave year is still lawful provided the employee has had the opportunity to take the leave.
  • There is no obligation on employers to agree to an employee's request to take paid annual leave during a sick leave period.

Following the ECJ ruling, the only matter left in dispute in the Stringer case was whether a claim based on an alleged failure to make payments in respect of annual leave under the UK Working Time Regulations (WTR), could be brought by way of a claim for unauthorised deduction from wages under the Employment Rights Act 1996 (ERA), or under the Regulations themselves. The issue was whether claims for payment in respect of holiday and for payment in lieu of holidays accrued but not taken on termination of employment are unauthorised deductions from wages. In June, the House of Lords held unanimously that they are unauthorised deductions.

As recently as last September, in a case referred from the Spanish Courts, Pereda v Madrid Movilidad SA, the ECJ reaffirmed its position on the Working Time Directive. The Court held that an employee who was sick during scheduled holiday could not be forced to take annual leave during a period of sick leave. The employee was entitled under the Directive to take the holiday again at a later date, even it that meant carrying over the entitlement into the next holiday year.

It is not clear what effect this will have on Irish employers in the private sector. The 1997 Act requires an employee to actually work during a leave year in order to accrue annual leave.

On the basis of these rulings, were Irish law to be changed to expressly provide for accrual of holidays during sick leave, it will need to be ascertained whether or not employees in Ireland will be able to carry forward statutory holidays accrued during an entire holiday year spent off sick to the next holiday year in which they return to work. Employers should therefore manage sickness absence carefully and make it clear that the right of accrual only applies to the statutory minimum entitlement and not above generous contractual entitlements.

It appears that the Oireachtas will have to change Irish law to bring it into line with the ECJ ruling. Until that time, private sector employers are entitled to continue to apply the relevant provisions of the Organisation of Working Time Act, 1997. However claimants will seek to apply the ECJ decisions directly, even in the absence of a change in the Irish legislation.