An employment tribunal has recently held that an employee on long-term sick leave and in receipt of PHI benefit was not entitled to payment for accrued but untaken statutory holiday for the duration of the sick leave on the termination of her employment (Souter v Royal College of Nursing Scotland (RCN)).
Mrs Souter had been on long-term sick leave. She had been in receipt of PHI benefit for a number of years. While on sick leave she had neither taken nor requested to take holiday. When Mrs Souter's employment ended she received a payment in respect of her final holiday year. Mrs Souter brought a claim for unlawful deduction of wages against RCN for unpaid statutory holiday for the rest of her absence, including the years when she was in receipt of PHI benefits.
The tribunal rejected Mrs Souter's claim for a number of reasons:
- The payment for the final year's holiday broke the series of deductions. The last deduction had been the end of the previous holiday year and, as her claim was brought more that three months after that date, it was out of time.
- Mrs Souter did not seek to take holiday in the years she was off sick and, as the Working Time Regulations (WTR) prevent workers carrying over untaken leave from one year to the next, Mrs Souter's unused holiday entitlement was extinguished at the end of each leave year. Therefore, she had no outstanding holiday entitlement for the years (prior to her final leave year) when she was on long-term sick.
- Even if Mrs Souter had an entitlement on termination to payment for accrued holiday during each year she was off sick, she had suffered no financial loss in respect of holiday pay. This was because her contract was varied when she started to receive PHI to provide for a lower "salary" level. Therefore, if Mrs Souter had taken statutory holiday while on PHI, she would have been paid in respect of that holiday at her PHI salary rate. As she received her PHI salary rate regardless of whether she took holiday, she had suffered no financial loss.
Impact on employers
- This is only a tribunal decision and is not binding on any other tribunals or courts.
- On the face of it, this decision, which agreed with the decision of the tribunal in Khan v McColl, is helpful for employers. It apparently confirms that employers can defeat unlawful deduction claims for prior years' untaken holiday by making a payment in lieu of holiday entitlement in the year of termination, and that untaken holiday is lost at the end of the year even if the employee was sick throughout and unaware of her right to take holiday.
- However, there is another tribunal decision contradicting this and holding that the WTR can be interpreted in line with the Working Time Directive to mean that an employee unable to take holiday due to sick leave can carry holiday to the next leave year (Shah v First West Yorkshire).
- This decision also appears to support the contentions, first, that an employee on PHI would have no loss to claim in relation to accrued holiday on the termination of their employment and, secondly, that if an employee does take holiday while in receipt of PHI, no "top up" payment is required, as the right to salary is contractually replaced by the right to receive PHI benefits. The former conclusion is to be doubted, as it is contradicted by the Employment Appeal Tribunal's (EAT) decision back in 2004 in Canada Life v Gray, that the right to holiday and to holiday pay are separate rights, meaning that a worker that has worked and been paid in full for a full year still has the right to statutory holiday pay on top. The tribunal's reasoning for the latter conclusion was not fully explained and is also subject to doubt.
- Guidance from the EAT is required to give greater certainty. In the meantime, in view of the contradicting judgments in this area at present, employers are recommended to deal with issues on a case-by-case basis. Private sector employers should at least make sure that they make a payment to a worker on termination in lieu of the holiday accrued but not taken in the final holiday year of employment. They will then have the opportunity to rely on the argument that such payment effectively ends the series of any previous unlawful deductions.