Employment: Holiday entitlement whilst sick

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Summary: There are two new judgments on holiday entitlement whilst sick. One is an ECJ decision, whilst the other comes from the EAT. Both are good news for employers. The European case says that the UK can legislate to prevent sick employees from carrying over unused holiday indefinitely, and the EAT decision suggests that sick employees must ask to roll over unused holiday entitlement, or lose it

The law regarding holiday entitlement whilst off sick has been in a state of flux for some time.  The Government acknowledged this in its Modern Workplaces consultation earlier this year, and proposed changes to clarify the scope of entitlement to carry over holiday whilst off sick.  We are still waiting for the Government to press ahead with making changes, but in the meantime two new cases have been decided which provide a further gloss on this issue.

In KHS AG v. Schulte, the ECJ said that the purpose of statutory holiday is to give employees a rest from doing their work, and to let them enjoy a period of relaxation and leisure.  Allowing long-term sick employees to accumulate several years of untaken holiday entitlement defeats this purpose.  It is therefore acceptable for Member States such as the UK to include a ‘use it or lose it’ carry over period in national law within which long-term sick employees must take their accumulated holiday.  On the facts of the case itself, the ECJ said it was acceptable for German law to have a ‘use it or lose it’ carry over period of 15 months.

On a related point, the EAT in Fraser v South West London St George's Mental Health Trust has ruled that employees on long-term sick leave may either take their holiday whilst off sick during that leave year or, if they wish to defer holiday to a subsequent leave year, they must ask to roll it over.  If the employees do not take it or ask to roll it over, the holiday entitlement will be lost.

Practical points for employers

Both these cases are good news for employers. However, the following notes of caution should be borne in mind:

  • Employers will have to wait for the Government to amend the Working Time Regulations before they can rely on a carry over cut-off period.  It is hoped that the Government will act quickly to implement the ECJ’s decision.
  • The EAT’s decision in Fraser does not strictly overrule previous conflicting EAT case law in this area. However, it is the most recent authority on this issue, and is the judgment of the President of the EAT, so is persuasive.
  • Some employers currently adopt a practice of writing to employees on long-term sick leave, inviting them to take a period of paid holiday whilst remaining on sick leave. This approach arguably breaks the ‘chain of deductions’, meaning that it is more difficult for long-term sick employees to claim holiday pay for holiday accrued in previous years. The Fraser case suggests that trying to break the chain of deductions may not be necessary.  However, pending confirmation from the Court of Appeal that the EAT decision in Fraser is correct, cautious employers may still wish to pay long-term sick employees for accrued holiday, even if the employees have not actively asked to roll it over.

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