We have in the past reported on the position of employees on sick leave accruing holiday entitlement, but cases continue to crop up in the Employment Tribunals and so here is an update on the most recent position.

The Working Time Regulations provide for a minimum holiday entitlement of 5.6 weeks inclusive of all bank/public holidays. The intention is for employees to take their holiday entitlement during the holiday year and so there is no provision for a payment in lieu of unused holiday to be made at the end of a holiday year or for unused holiday entitlement to be carried forward into the next holiday year.

In the case of Stringer v HMRC, the European Court of Justice confirmed that an employee on sickness absence continues to accrue holiday entitlement; if they are denied the opportunity to take their holiday entitlement during the holiday year due to their sickness absence then they can carry their holiday entitlement forward into the next holiday year. The House of Lords in the same case confirmed that if an employee is dismissed following a period of sickness absence then they are entitled to a payment in lieu of unused holiday accrued during their sickness absence – even if that sickness absence goes back several years.

In the case of Pereda v Madrid Movilidad SA, the European Court of Justice held that where an employee has a pre-arranged period of holiday leave and then falls ill such that the holiday leave falls within a period of sickness absence then they will have the option of taking that period of holiday leave at another time even if that means carrying it forward to the next holiday year.

There have been some conflicting decisions in the Employment Appeal Tribunal over the interpretation of the above points. The latest position appears to be that if an employee does not notify that their employer that they wish to take their unused holiday entitlement either during their sickness absence or on their return then they may lose the right to claim a payment in lieu of that unused holiday entitlement when they move into the next holiday year. However, employers would be advised to be cautious about employing a “use it or lose it” policy in this way as this continues to be an area of change.

In the more recent case of KHS AG v Schulte, the European Court of Justice addressed the fear that an employee could claim a payment in lieu of unused holiday entitlement accrued during their sickness absence going back indefinitely. Mr Schulte was on long term sick for 6 ½ years and was eventually dismissed in 2008. He brought a claim for unused holiday entitlement accrued during his sickness absence. KHS AG had a collective agreement which provided that any holiday entitlement not taken within 15 months of the end of the relevant holiday year would be lost and sought to rely on this to limit the amount of holiday entitlement that Mr Schulte could claim. The ECJ held that there must be a limit on the length of time that holiday entitlement can be carried forward by an employee and held that the terms of KHS AG’s collective agreement was reasonable.

The European Court of Justice has indicated that the period of time for which an employee on sickness absence may carry forward unused holiday entitlement should be determined by national legislation and the government has confirmed that this is under consideration as part of its wider consultation on flexible approaches to the modern workplace.

In the meantime, employers are advised to have clear policies on how unused holiday entitlement will be treated and to have procedures in place for dealing with employees on long term sickness absence to ensure that appropriate steps are taken to either assist that employee in a return to work or to dismiss the employee on the grounds of ill health incapability. Eaton Smith can assist with policies and procedures as required.

For more assistance with employment law issues or to discuss our employment law support packages then please contact Kate Booth on 01484 821309 or katebooth@eatonsmith.co.uk
Posted Wednesday 2nd of May 2012