Another month and another two significant decisions on the current hot topic of holiday accrual during sickness absence.

Firstly, the Employment Appeal Tribunal (EAT) held, in Fraser v St George’s Mental Health Trust, that employees on sick leave are only entitled to their statutory holiday pay if they have actually sought to take leave in the holiday year in question. It is now clearly established that employees continue to accrue holidays whilst absent on sick leave. Further, if they have been prevented from taking leave due to sickness absence, they should be allowed to carry it forward to a subsequent leave year. The EAT has now considered whether an employee who neither took, nor sought to take, statutory holiday during a number of years' sickness absence, was entitled, on the termination of her employment, to payment in lieu of that full untaken holiday entitlement.

Ms Fraser went on sick leave in November 2005, and was absent until her dismissal in October 2008. Upon termination, she was paid in lieu of her final year’s leave only. The Trust argued she lost her entitlement to holiday pay for the first two years of her absence at the end of each year, as she had not made any application to either take the leave or carry it forward.

The EAT has upheld the Trust’s case, and in doing so, has confirmed that the decision of the EAT in Canada Life Ltd v Gray from 2004 (where it held that workers don’t need to seek to take holiday to be entitled to statutory holiday pay), was wrongly decided. Instead, the basic principle that a worker should not be entitled to statutory holiday pay without giving notice to take holiday was correct. The EAT did not consider this to be in conflict with the decision of the ECJ in Pereda, where it was established that an employee on sick leave must be able to either take holiday whilst off sick, or request to carry it forward. The EAT confirmed that a request to take holiday must be made. The carry forward is not automatic and, without the request, the employee will lose their entitlement.

Interestingly, the EAT also commented that employers are under no obligation to inform employees absent on sick leave of the requirement to make a request to take their holiday entitlement, as it is a right under general law, rather than a contractual entitlement.

Shortly thereafter the Court of Justice of the European Union (CJEU) issued its decision in the German case of KHS AG v- Schulte, which considered whether or not it was lawful to limit the period, following the end of the leave year, during which holidays which have been carried forward must be used.

Mr Schulte was employed by KHS in Germany as a locksmith. A collective agreement provided that annual leave which had not been taken at the end of a leave year could be carried forward, but it must generally be taken within the first three months of the new leave year. If an employee had been prevented from taking leave due to sickness absence, that period was extended to 15 months. The CJEU has confirmed that it is lawful to limit the period in this manner.

The CJEU recognised that the right to carry-over must be qualified, as otherwise there could be no limit to the amount of leave accumulated by a sick employee. Further, if leave is carried over indefinitely, there will come a time when the leave will no longer serve the statutory purpose of providing the employee with a period of rest and relaxation. Similar comments were made by the EAT in the recent case of Adams and another v Harwich International Port Limited. The CJEU confirmed that it is up to individual member states what the limitation period is, but noted that it should be “substantially longer than the reference period in respect of which the leave is granted” (the leave year). Interestingly, however, in this case a limitation period of 15 months was considered to meet this test of being “substantially longer” than the reference period of 12 months.

Points for employers

  • Both of these decisions appear to be good news for employers. The requirement that an employee must make a request to take holiday will limit the amount of leave accumulated by, or payable to, employees on long term sick leave on termination of their employment. In light of the EAT’s comments, employers do not necessarily have to inform employees of the need to make this request (albeit many may introduce such a requirement into policies, to avoid any dispute). However, the reprieve for employers may be short-lived as once it becomes known that holidays must be taken if they are not to be lost, it is likely that employees on long-term sick leave will make sure they request holidays in each holiday year and the employer will have to pay for such holidays as they fall due or permit the carry forward with the result that the employer pays in a subsequent leave year or on termination.
  • Note, however, the conflict between the Fraser decision and the EAT’s decision in the case of NHS Leeds v Larner earlier this year, where it held that a sick worker's untaken statutory holiday entitlement carried over to the next year regardless of whether she formally requested that this happen. The Larner decision is due to be considered by the Court of Appeal early next year. Therefore, until we receive guidance from the Court of Appeal, there is scope for doubt as to the correct position on this issue, and employers should proceed with care in relying upon the Fraser decision.
  • The Government is in the process of considering amendments to the Working Time Regulations 1998, to bring them into line with all the recent decisions regarding the accrual of holidays during sick leave, and the right to carry forward in certain circumstances. It is likely a limit will be placed upon the period within which carried forward holidays must be used. Whether the limit introduced in the UK is as little as 15 months, as in Schulte, or perhaps 18 months, will remain to be seen.

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