Sickness and Holiday entitlement under the Working Time Regulations 1998

For the past 10 years there has been uncertainty about what happens to holiday which is accrued during sick leave when an individual has been off sick for most if not all of the holiday year and doesn’t have sufficient time to take the holiday during the remainder of the leave year.   Under the Working Time Regulations 1998 (“WTR”) all workers are entitled to 5.6 weeks’ paid annual leave each year.  The WTR represent the UK Government’s implementation of the EU Working Time Directive (“WTD”).  The European Court of Justice (“ECJ”) case of Pereda decided that the WTD requires that annual leave can be carried forward to the next holiday year if there is insufficient time for the employee to take that holiday on return to work from a period of sick leave.  However, under the WTR, employees are prohibited from carrying annual leave forward.   Matters are further complicated as the WTD is currently under scrutiny in the ECJ in the case of KHS AG v Schulte.  The Advocate General has stated her opinion that allowing workers to carry untaken holiday forward indefinitely fails to achieve the stated purpose of the WTD which was to ensure the health and safety of workers by ensuring that they get proper rest.

So where do we currently stand in the UK?  The latest case to deal with this issue is the case of Fraser v Southwest London St George’s Mental Health Trust.  In this case the Employment Appeals Tribunal (“EAT”) has decided that:

1.  a worker on long-term sick leave must request annual leave in line with the requirements of the WTR in order to be entitled to be paid for it;

2.  a worker is entitled to be paid in lieu of accrued but untaken holiday when employment terminates,  but only in respect of leave accrued during the leave year in which employment terminates.  Accrued but untaken annual leave from previous years does not carry forward for the purposes of the payment in lieu entitlement where no request to take such leave was made by the worker; and

3.  there is no duty on the employer to make a worker aware that the WTR rules operate in this way.

It is important to remember that these provisions apply only to statutory annual leave entitlement.  Many employees are entitled to holiday over and above the statutory minimum.  In those situations, it is the terms of the contract which will determine what happens to the holiday over and above the WTR minimum which has accrued but not been taken.  Employers therefore need to consider carefully when drafting contracts of employment whether they want employees to be able to carry forward any of their contractual annual leave entitlement and, if so, how much.  Remember, it is unlawful to carry forward statutory holiday, so if your employees are contractually entitled to only 5.6 weeks a year (including public and bank holidays) you are prevented from allowing them to carry any of that holiday forward at all by virtue of the WTR.

The question for employers to decide, therefore, is whether, in their contracts of employment, they want to include clauses which encourage their employees to request to take holiday during periods of extended sick leave, particularly if that sick leave is taking place towards the end of the leave year, or do they want to not mention it in the hope that those employees will simply lose their holiday entitlement (and hence the right to be paid for such holiday) if they are sick and unable to take their holiday.  There are pros and cons for each approach.

If employees are encouraged to request the holiday during periods of sick leave, then this minimises the risk of the employer having to pay up to a full year’s holiday pay if that employee leaves the employment at the end of the leave year without having taken any or all his or her annual holiday entitlement.   That could save the employer a significant amount of money on termination of employment.  However, if they are not so encouraged, employers could find that they save significant amounts of money if the employee returns to work the following leave year having thereby forfeited much if not all of his or her holiday entitlement from the previous leave year as a result of being off for an extended period of sick leave.

It will be for employers to decide how best to deal with this, but whichever way one looks at it, the finding in this case is good news for employers and employees should take note.

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About Belinda Lester
I am the managing director and founder of Lionshead Law a specialist employment law and HR consultancy company.

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