Holiday Pay Carry Over

13 Aug 2012

Charlotte Sloan and Andrew Scott

Background

Holiday and sick leave has been subject of an array of European case law over the past few years. Following the recent case of ANGED v FASGA, it is now the position that where a worker either falls ill before a period of arranged holiday or falls ill during an arranged holiday, the employee is able to rearrange the holiday to be taken at a later time, including during the next leave year.[1]

European case law only has direct effect on public bodies in the UK and not on private sector companies. It is therefore important that in addition to the European Case Law, we now have the (long awaited) Court of Appeal decision on this issue from the case of NHS Leeds v Larner.

NHS Leeds v Larner: The Facts

Mrs Larner, who worked for NHS Leeds as a clerical officer, went on sick leave in January 2009. She did not return to work, and NHS Leeds terminated her employment in April 2010 by reason of capability. Mrs Larner claimed payment in lieu of the untaken leave.

NHS Leeds argued that she was not entitled to that leave because she had not made a request to take leave or carry it over.

Both the Tribunal and the Employment Appeal Tribunal (“EAT”) rejected the NHS’s argument and upheld Mrs Larner's claim for holiday pay.

On appeal, the Court of Appeal unanimously rejected the NHS’s argument holding that:

under Article 7 of the Working Time Directive (“WTD”), holiday pay continues to accrue during periods of absence due to sickness and an employee who is prevented from taking annual leave through sickness must be allowed to take their annual leave that they missed later in the year, or if this is not possible, in a subsequent year; and
it is not a requirement of Article 7 WTD that a worker must make a request to take or carry forward annual leave.

Therefore, Mrs Larner was entitled to a payment in lieu for the leave that she had been unable to take.

What the decision actually means

As a result, if a worker is unable to take the four week’s annual leave conferred by the Working Time Regulations 1998 (“WTR 1998”) due to sickness then:

they must be allowed to take annual at another time, if necessary by carry over into a later leave year (and not have to have previously made a request to carry the leave over); and
compensation for untaken leave on termination must include compensation for such untaken leave, even if it relates to leave not taken in previous leave years. However, in the recent German case of KHS AG v Schulte the ECJ held that there could be a limit on the number of years the leave can be carried forward. In this instance, the court found 18 months to be the limit, but this may need to be addressed on a case by case basis, since this case related to that limit being in a workforce agreement.

Practical Application

It is important to note that Article 7 of the WTD 1998 is directly applicable to the NHS, because the NHS is a public organisation run by the state. Directives, such as WTD 1998 only have effect on the member states (the government at the time) and those bodies horizontally linked to the state, such as a public organisation like the NHS.

However, the Court of Appeal gave guidance that, if it were necessary, the WTR 1998 (which are directly applicable on any employer in the UK) could be interpreted in accordance with EU Law to apply to private sector employers.

Therefore, the safest course would be for all employers to allow workers to carry over their accrued holiday if they have been on long-term sick leave and have not had the opportunity to take that holiday (without any requirement for the employee to formally request that the holiday is carried over). In order to override abuse of this system, however, normal sick leave notification procedures should be followed.

Finally, it is important to note that the decision of the Court of Appeal is binding on all lower courts and tribunals (including employment tribunals) in the United Kingdom. Therefore, the employment tribunal will have to apply this decision to any claim on the same or similar facts.

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[1] Please see E-ployment E-News: “Workers entitled to postpone paid annual leave if they fall sick during annual leave”.