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Sickness absence and the entitlement to payment on termination of employment for untaken holiday

Posted on 23rd August 2011
Case law

Employees on long-term sick leave may be entitled to pay for untaken annual holiday leave which has accrued in the previous holiday year even if the employee has not requested to take any holiday.

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Julie Temple Julie
Temple
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NHS ​Leeds v Larner

Summary

This case update explains how employees who are dismissed after being on long-term sick leave may be entitled to be paid for untaken annual holiday leave which has accrued in the previous holiday year even if the employee has not requested to take any holiday.

The issue

Regulation 13 of the Working Time Regulations 1998 ('WTR') appears to prevent statutory holiday from being carried over from one holiday year to the next. There have been a number of decisions in the Employment Appeal Tribunal ('EAT') which have interpreted the WTR in this way. There have been a number of high-profile cases at the European Court of Justice ('ECJ') which have held, based on the European Working Time Directive, that holiday entitlement can be carried over into the next holiday year where a worker is prevented from taking holiday in the current holiday year due to a period of sick leave.  See Right to defer holiday until after sick leave and Sickness absence and paid annual leave.

This confusion between UK case law and European law has led to conflicting decisions in the tribunals.

In this case the EAT held that the employee, Mrs Larner, who had been on sick leave for the entire leave year, had not been well enough to exercise "her right to enjoy a period of relaxation and leisure." The fact that Mrs Larner failed to request holiday during the relevant year did not mean that she lost the right to be paid holiday pay upon the termination of her employment for capability; Her holiday entitlement carried over into the next holiday year and she was entitled to be paid for that holiday entitlement upon termination of her employment. This appears to be in line with the Pereda case and gives a strong indication how other cases at tribunal and EAT level may be decided.

Disappointingly, the EAT failed to address the conflict between the wording of the WTR and the European Directive's requirements to allow carry over. In particular, it did not address how the WTR can be interpreted in line with Pereda. It is likely that there will be further litigation surrounding this issue. Until the WTR are amended to reconcile it with European law there will be uncertainty. The government has proposed amendments to the WTR which are yet to be implemented. We will keep you updated.

In practice

It is possible that employers will incur additional costs because employees on long-term sick leave who have not used up their holiday entitlement in a holiday year due to sickness will be entitled to carry over that holiday entitlement to the following holiday year and be paid for this untaken holiday on termination of their employment. This may mean that some employers may decide to dismiss an employee off sick to avoid having to pay any additional holiday entitlement that they might carry over. The prudent employer will ensure they obtain appropriate advice first as any decisions may result in a claim for unfair dismissal or disability discrimination.

This case does not clarify the situation of what happens in the case of an employee who does not take holiday in the holiday year it accrues. On termination, is the employee entitled to be paid for this accrued holiday? Regulation 13 (9) WTR suggests that a worker's right to take the accrued holiday is lost at the end of the holiday year, but the EAT case law suggest that the right to be paid for that accrued holiday is not lost.

We think it is time for the issues of holiday entitlement under the WTR to be reviewed and for amended regulations to be published to clarify the many issues which, despite cases like Mrs Larner's, have not yet been resolved.

For some further articles on holiday and sick leave see Entitlement to statutory holiday pay is lost if not requested by employee on long-term sick leave and Holidays and sickness absence.

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