The House of Lords gave its judgment on 10 June 2009 in the case of Stringer –v- HMRC, reminding all employers that European and now UK employment law takes no regard for the economic climate.
Background

The case centred on whether employees on long term sick leave were entitled, when they returned to work or left employment to take or be paid for the statutory minimum holiday entitlement (now 28 days), which had accrued over the period of absence.

Minimum holiday entitlements were introduced for Health and Safety reasons and the Working Time Regulations specifically provided that that holiday entitlement could not be carried forward into subsequent holiday years. The Court of Appeal’s earlier decision which stated say that there was no entitlement to accrue holiday whilst absent from work on a long term basis, seemed justifiable and sensible to employers.

However earlier this year the European Court of Justice held that workers accrue paid holiday for their entire sick leave and must be allowed to take it whilst on sick leave or, if not, on their return and be paid it on termination of employment. This ruling was then passed back to the House of Lords and as expected the decision has been confirmed today.

What is even worse for employers is that the House of Lords has also confirmed that claims can be raised as unlawful deductions of wages and as such can be claimed for the whole period of any absence, even if this stretches back over a number of years!
The impact for employers
What holiday is accrued?

Employees off on long term sick leave will continue to accrue basic statutory holiday as if they were at work. Therefore, employers must continue to keep records of a person’s holiday entitlement even if they are off on sick leave.
What Happens to Accrued Holiday?

There are a number of different scenarios:-

During sick leave – employees should be given the chance to take and be paid holiday pay during a period of sickness absence;

If there is insufficient time to take holiday during the holiday year – if the employee returns to work following a period of sick leave and there is insufficient time to take holiday before the end of the holiday year, holiday accrued on sick leave should be taken at another time (including in another holiday year);

If prevented from taking holiday due to incapacity: if sickness or incapacity prevents the employee taking holiday during a period of sickness absence, they should be able to take it at another time (including in another holiday year);

On termination – any holiday pay that has accrued during a period of sickness absence that has not been taken is paid in full on termination.
What if the employee has exhausted sick pay?

If the employee’s entitlement to sick pay has ended, holiday pay is paid at their normal salary rate – this would include any salary increases during the period they have been absent.
What if my Company policy states no carry over?

This judgment only effects statutory minimum holiday entitlements, which for full-time workers is now 28 days including bank holidays.

Employers should allow employees the ability to take all their holiday (contractual and statutory) during a period of sickness absence. However, rights to carry over can only be restricted in relation to contractual leave entitlement.

If the employee has been given the chance to take statutory leave during a period of sickness absence but has not been able to do so, they should be allowed to carry this holiday forward to the next holiday year or to a period when they are able to take it or be paid this holiday on termination.
What if an Employee’s salary is partially covered by income protection insurance?

The Employer may have to make up the difference to full pay for up to 28 days per year.
When can employees make a claim?

At any time prior to three months after their employment ended.

If you have any questions regarding this judgment or any contractual amendments you might be able to make to protect your business (particularly the terms upon which income protection insurance is offered) please contact one of our employment lawyers on 0118 952 7284.