Paid Holiday Leave During Sickness Absence – Holiday entitlements during and after a period of long term sick leaveMonday, February 2nd, 2009
In the case Commissioners of Inland Revenue v Ainsworth and Others, the Court of Appeal, in April 2005, ruled that
- there is no obligation for an employer to treat a worker as entitled to paid holiday leave under the WTR rules who
- is on long-term sickness absence, and
- has been unable to attend work throughout the entire holiday year,
- there is no entitlement to payment in lieu of paid holiday leave when the employment of such a worker is terminated.
The decision was appealed to the House of Lords where, in October 2006, it was referred to the European Court of Justice (ECJ) for a decision on the issues raised by the case. By that time, the case had been renamed Stringer and Others v HM Revenue and Customs.
The European legislation in question is Article 7 of the Working Time Directive (WTD). It states:
- Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
- The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.
These entitlements were enacted in the UK by means of regulations 13, 14 and 16 of the Working Time Regulations 1998 (WTR). As this is essentially health and safety legislation, the WTD does not permit member states to limit the four weeks entitlement in any way or to allow a payment in lieu of the four weeks’ entitlement to be made in any situation other than on termination of employment. All workers are entitled to the full four weeks paid leave in a holiday year to rest from their work. (Since October 2007, the UK has provided entitlement to additional paid holiday leave and, although some carry forward of the additional entitlements is permitted, no payment in lieu is permitted from April 2009 when the full additional 1.6 weeks’ entitlement comes into force.)
The House of Lords asked the ECJ to clarify the following two questions so that the appeal in the Stringer case could be considered in the light of the WTD:
- Does Article 7(1) of the WTD mean that a worker on indefinite sick leave is entitled (1) to designate a future period as paid annual leave, and (2) to take paid annual leave, in either case during a period that would otherwise be sick leave?
- If a Member State exercises its discretion to replace the minimum period of paid annual leave with an allowance in lieu on termination of employment under Article 7(2) of the WTD, in circumstances in which a worker has been absent on sick leave for all or part of the leave year in which the employment relationship is terminated, does Article 7(2) impose any requirements or lay down any criteria as to whether the allowance is to be paid or how it is to be calculated?
ECJ procedures require the questions posed by such referrals to be researched initially by an Advocate General, one of eight senior law officers whose role is to provide the ECJ with a legal answer, or “Opinion”, as to how they believe the questions raised in each case should be answered. Such an Opinion is not binding and the ECJ, may agree in whole or in part, or come to an entirely different conclusion.
On 24 January 2008, Advocate General Trstenjak gave her preliminary Opinion on the two questions referred by the House of Lords. In summary, she concluded that:
- A worker who is on sick leave retains entitlement to annual leave but that leave may not be taken during the period of sick leave.
- When such a worker’s employment is terminated, whether the absence was for all or part of the holiday year in question, compensation for leave not taken because of the illness is due at a rate that is equivalent to the worker’s normal pay.
The ECJ published its decision on 20 January 2009. The decision combines two cases, the referral from the House of Lords and another closely-related case referred by the Higher Labour Court in Germany. The decision is listed under the name of the German employee Schultz-Hoff.
The ruling of the ECJ is in three parts, as follows:
- Article 7(1) does not prevent the legislation of a member state from providing that a worker on sick leave is not entitled to take paid annual leave during that sick leave.
- However, Article 7(1) does prevent the legislation of a member state from providing that, at the end of a leave year or at the end of any carry-over period*, the right of a worker to paid annual leave is lost, even where
- the worker has been on sick leave for all or part of the leave year or carry-over period*, and
- the incapacity for work that prevents the worker taking paid annual leave continues until the employment is terminated.
- Article 7(2) prevents the legislation of a member state from providing that, on termination of employment, no payment in lieu of untaken paid annual leave is to be paid to a worker who has been on sick leave for all or part of the leave year or carry-over period and who, for that reason, was unable to exercise the right to paid annual leave. The payment in lieu must be made at the level of the worker’s normal remuneration.
* The reference to a “carry-over period” is to the statutory provisions of some member states that allow holiday leave untaken in one holiday year to be taken during a short period in the next holiday year, after which that untaken entitlement is lost.
The ECJ thereby confirmed the Advocate General’s earlier Opinion on this case, other than in one particular respect. The ECJ made it clear that, although the WTD does not prevent member states from not allowing workers to take paid holiday leave during sickness absence (on condition that they are allowed to take it at another time), neither does it prevent them from specifically allowing it. However, the ECJ noted that all of the member states had indicated in their prior observations on this question that workers should not be permitted to take holiday leave during sickness leave, so it is unlikely that any member state will permit this practice in future.
What are implications of the ECJ ruling for employers in the UK?
First, the House of Lords will be obliged to allow the appeal brought against the decision of the Court of Appeal, at least in the case of four of the five workers involved who were denied payments in lieu of untaken holiday leave on termination (rather than on returning to work).
However, the House of Lords will have to rule on an issue on which the ECJ was silent. Does the entitlement to payment in lieu of untaken holiday leave extend to more than one leave year? If a worker has been on sick leave for, say, three whole leave years and is then dismissed, is the worker entitled to three years’ worth of termination holiday pay? On the basis that
- Article 7(1) allows member states to set the conditions for entitlement for paid holiday leave, and
- the UK’s rules do not allow workers who have been at work
- to carry forward untaken holiday to the next leave year, or,
- on termination, to be paid in lieu for more than the untaken leave in the current leave year
it is difficult to see how the House of Lords could conclude that workers who have been absent sick for a long period could be entitled to more than workers who have been at work. Nevertheless, press comment on the ECJ decision speculates on the prospect of employers having to pay up several years of unused holiday entitlement when workers leave. If the House of Lords decides that untaken leave entitlement over the whole of the sickness absence must be paid up on termination, it may be necessary for the government to amend the WTR to allow workers who have not been sick to carry forward untaken holiday leave in the same way.
Press comment also suggests that several years of entitlement would have to paid up when long term sick employees return to work. However, the ECJ decision only addresses the issue of payment in lieu on termination and Article 7(2) is specific that “the minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated”. The decision does, however, leave open the question of how much paid leave a worker who has been on long-term sick is entitled to take on returning to work.
Second, private sector employers may choose to wait until it is clear what the House of Lords’ decision will be and whether the government is moved to amend the WTR. In the meantime, it may be prudent to consider the status of workers who have been absent sick for long periods and make a decision on their future employment.
On the other hand, public sector employers, whose terms and conditions are directly governed by European Directives and are therefore automatically governed by the ECJ decision, have to consider the implications of the decision immediately, despite the uncertainty of the termination payment requirements and their potential financial liabilities.
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