The Court of Appeal has handed down its decision in the case of NHS Leeds v Larner, goes some way towards clarifying the law on holiday rights for employees on sick leave. The Court has decided that workers who have been absent from work on sick leave are entitled to holiday pay in lieu of untaken statutory holiday on termination of employment whether or not they have requested to take the holiday, or carry it over, during the relevant leave year.
The case clarifies one point left unresolved following a series of decisions from the Court of Justice of the EU (CJEU). Those cases started with Stringer v HM Revenue & Customs  and Pereda v Madrid Movilidad SA  which made it clear that, under the Working Time Directive, and despite wording to the contrary in the Working Time Regulations 1998 (WTR), NHS workers are entitled to carry forward annual leave from one year to the next where they have been unable to take their full entitlement during the leave year because of sickness, even if the worker could have used their entitlement whilst on sick leave but opted not to. However, one point those cases did not tackle was whether a worker must specifically ask to carry forward leave before the end of the leave year in which it accrued. The Court of Appeal has now said no such request is necessary and leave will carry forward automatically if the worker has been unable to take it due to sick leave (including if they could have taken it during sickness absence but opted not to).
Another point resolved by the Court of Appeal is whether the Working Time Regulations 1998 can be interpreted so as to give effect to the right to carry forward holidays given that the regulations themselves say there shall be no carry forward. The Court said they should be interpreted so as to allow carry forward. This part of the decision is less significant in the public sector than it is for private sector employers. That is because it has already been established by the CJEU that workers in the public sector can rely directly on the European Directive to enforce their rights. This is not the case for employees working for private sector employers, who can only enforce rights under our domestic legislation ie the Working Time Regulations. So this decision of the Court of Appeal establishes that public and private sector employers are on an equal footing.
However, other issues surrounding annual leave rights in cases involving sickness absence remain unresolved. These include the question of whether any right to carry over leave in the WTR applies to the additional 1.6 weeks' leave conferred by the Working Time Regulations in excess of the four weeks' leave required by the Directive. The Court of Appeal declined to give a ruling on this point as it hadn’t previously been raised in argument. However, it is certainly arguable, following the CJEU case of Neidel, that carry forward only applies to the four weeks’ minimum leave in r13 of the WTR and not the additional 1.6 weeks’ in r13A. Another unanswered question is whether there is a time limit on how long a worker has to take carried forward leave, thereby preventing accrual of large amounts of leave over several years.
This decision will inevitably be scrutinised by the government which is already proposing to amend the Working Time Regulations (WTR) to permit carry over where a worker has been unable to take his annual leave due to sickness. The government has proposed to limit the ability to carry over or reschedule annual leave which has accrued due to sickness absence to the 20 day EU entitlement, meaning that the additional UK entitlement of 1.6 weeks will not carry over in these circumstances. What is missing from the government’s proposals is some clarity on the period for which statutory holiday entitlement can be carried forward. Employers will be hoping the government takes the opportunity to broaden its proposals on amending the WTR to clarify that issue also.
It must be borne in mind, however, that across the public sector many workers have far more generous contractual holiday rights than those set out in the WTR. Rights to accrue and carry forward this kind of leave will be determined by the contract rather than the WTR. So it should not be assumed that the rules applying to the WTR also apply to contractual entitlements. What is more, workers are not entitled to WTR leave on top of contractual leave (unless their contract says otherwise). The effect of this is that often, where contractual leave is generous, there will be no need to allow carry forward at all over and above any carry forward rights set out in the contract.
You can view the Court of Appeal’s decision here.