In the good old days, if you were sick you were sick and if you were on holiday, (you guessed it) you were on holiday! But what about when the lines blur when being asked about holiday pay when off sick?
In the UK, the rules on holiday are set out in the Working Time Regulations (WTRs) based on the EU Working Time Directive. Rules set out in the WTRs include:
- The basic statutory four weeks’ holiday must be taken during that holiday year and you cannot replace with a payment in lieu except on termination.
- The contract may provide for the remaining 1.6 weeks’ of holiday to be carried over but not to be replaced by a payment in lieu except on termination.
- Workers can give notice of when they intend to take holiday. You can reject requests and give notice of when leave must be taken.
- Workers are entitled to be paid for holiday at a rate of a week’s pay for each week of leave.
- On termination, you must pay the worker in lieu of their untaken holiday entitlement.
Recent Cases
Some recent cases have, however, caused confusion about the rules regarding holiday pay when off sick. This blog summarises the issues raised by holiday pay when an employee is off sick and highlights important points for you to remember.
The Stringer case concerned a number of employees. One of those was still employed but off sick. She wanted to be paid for holiday during her sick leave rather than lose the leave entitlement. The others had been dismissed and wanted to be paid in lieu of untaken leave from previous holiday years. The case went up to the House of Lords and they asked the European Court of Justice (ECJ) for guidance.
In this case, the ECJ confirmed that workers on sick leave continue to accrue holiday rights and stated that it was for member states to decide whether workers can take annual leave during sickness or, if not, they must be allowed to take it when they return to work, even if this means carrying it over. Based on this guidance, the House of Lords agreed that the WTRs rule out carry over so workers must be allowed to take annual leave (and be paid for it) during sickness absence.
In the case of Perada, the Spanish employer had a system of notifying employees of when they would be taking their leave in advance (like the traditional factory fortnight). This was to ensure numbers of workers off at any time did not exceed the employer’s acceptable levels. The rule was that leave could not be changed with less than 45 days’ notice.
According to the rota for 2007, Mr Pereda was due to take annual leave from 16 July to 14 August. However, following an accident on 3 July, he took sick leave until 13 August, with the result that all but two days of his annual leave coincided with his sick leave. Because of this, he asked the employer to grant him an alternative period of annual leave from 15 November to 15 December. The employer refused without giving reasons.
The ECJ decided that while the Directive allows workers to take holiday during sick leave, if they do not wish to do so and their prearranged holiday coincides with a period of sick leave, the holiday must be granted at a different time, even if this means carrying it over.
Where does this leave you when workers’ holidays are affected by sickness?
You are best advised to allow the rescheduling of holiday affected by sickness, while taking steps to prevent abuse (such as paying SSP, applying waiting days, enforcing reporting requirements, requiring medical evidence, recording and monitoring sickness and only paying where an employee would be unfit to do their job opposed to whether they are unfit to enjoy their holiday). Under the recently reported, ANGED v FASGA, this will be the basis regardless of when the employee becomes ill.
Holiday pay when off sick (long term)
When dealing with employees on long term sick leave, a number of cases set out the Courts’ position. Under Pereda, workers cannot be forced to take their holiday if they are sick even though you can issue notice of holiday to other workers. Workers may take their annual leave while they are off sick but they may choose not to and in that situation, must be allowed to carry over their leave so as not to lose their entitlement.
Under another case called Schulte, this carry over need not be unlimited and the employer can agree limits as part of a contract. In this case, the agreed limit was 15 months from the end of the leave year in which the leave accrued. (However, in another case, Neidal, a German law giving employees nine months from the end of the leave year was held to be too short).
In the UK, we had two conflicting decisions from the Employment Appeal Tribunal (EAT) about this.
In Larner, the employee worked for NHS Leeds as a clerical officer. Mrs Larner went on sick leave on 5 January 2009 but did not return to work, and NHS Leeds terminated her employment on 8 April 2010 by reason of capability. Mrs Larner brought a tribunal claim seeking a payment in respect of the statutory holiday entitlement that she did not use during her sickness absence. The EAT held that holiday should carry over automatically where a worker was off sick for the whole holiday year. This case has been appealed to the Court of Appeal and was heard in March but no decision has been reported yet.
In the case of Fraser, a nurse went on long-term sick leave in November 2005 and did not return to work before her dismissal in October 2008. After the termination of her employment, Mrs Fraser’s employer paid her in lieu of her final year’s statutory holiday entitlement. However, it did not make a payment in lieu of her untaken holiday entitlement for the previous two years. The employer argued that Mrs Fraser had been obliged to give notice to take holiday in order for her holiday to carry over. As she had not given such notice, her right to take statutory holiday had expired at the end of each holiday year and so did her right to be paid holiday pay. The EAT agreed and decided that Pereda should only apply where a sick worker asks to be allowed to carry over their untaken entitlement before the holiday year ends.
What does this mean for Employers when informing employees about holiday pay whilst off sick?
- Allow automatic carry over as you would in maternity cases
- Allow carry over only where a sick worker requests it in during the holiday year
- Continue with a “use it or lose it” policy but risk breaching the WTRs.
Workers may argue that they have accrued leave whilst off on long term sick which has carried over year on year. In Fraser, the EAT’s view was:
- Workers are only entitled to statutory holiday pay if they take statutory holiday or give notice to their employer that they wish to take such holiday
- Where a worker carries over holiday entitlement and does not return to work before being dismissed, then the WTRs may be read as entitling the worker to a payment in lieu not only of the last year’s untaken entitlement but also the entitlement they have carried over from other leave years.
Where does this leave you if you have long term sick employees?
Until the decision of the Court of Appeal is given in Larner, you are at risk of claims if employees do not take holiday during their sick leave or you do not allow it to carry over in to the next holiday year. This applies to entitlement to holiday and to holiday pay. The best plan would be to advertise (and agree where appropriate) a 15 month cut off period during which accrued leave is to be taken. It will also be most helpful to actively encourage employees to use up their holiday entitlement while they are off sick to avoid them from building up holiday while they are off.
Government Proposals
As part of the Modern Workplaces consultation, it has been suggested that the WTRs be amended so that where a worker has been unable to take their basic four weeks’ holiday due to sickness absence, or falls sick during scheduled annual leave, they will be able to carry over in to the next leave year.
Employers will be able to require employees to take their annual leave in the current leave year if there is opportunity for them to do so or, where there is a business need, to insist that the unused leave is carried over.
The consultation on this has closed but no further information has been given about implementation.
How Can Nelsons Help?
Laura Kearsley is a Partner in our specialist Employment Law team.
For more employer legal advice or to comment on this article please contact Laura or another member of the team on 0800 024 1976 or contact us via the online form.