Compensation & Benefits: Statutory holiday pay for workers on long term sick leave
Earlier in 2009 the European Court of Justice ruled that workers who were on long-term sick leave were entitled to continue accruing annual holiday even if they had exhausted all entitlement to paid sick leave. The ECJ also ruled that holiday entitlement could not be taken during the course of a period of sick leave and accordingly that the leave would continue to accumulate until such time as either the individual returns to work and can use it to take time off work or the employment ends, in which case a payment in lieu of the accrued leave must be made.
In June the House of Lords gave its decision in the test cases that have become known as Stringer v HMRC. The House of Lords was bound to apply the decision of the European Court and confirm that statutory holiday entitlement continues to accrue during periods of sickness absence even if the absence is otherwise unremunerated. The main focus of the House of Lords decision was on the single technical issue of whether it is possible to bring a claim for non-payment of holiday as a claim for unlawful deduction from wages under the Employment Rights Act 1996. The time limits for claims for unlawful deductions from wages are more generous time limits than those that apply under the Working Time Regulations which govern statutory holiday entitlement.
The House of Lords was unanimous in deciding that claims for unpaid holiday could be made under the provisions governing unlawful deductions from wages. The practical effect is that where a person has been off sick they can treat the non-payment as a “series of deductions” and make a claim for unpaid holiday accrued during the entire period of absence provided that they do so within 3 months of the last. This contrasts with the provisions of the Working Time Regulations which provide that the employee must first have requested holiday and been turned down and that requests for holiday can only limited to holiday accruing in the current holiday year, in effect limiting the amount of outstanding holiday that can be claimed to one years’ entitlement.
This ruling may turn out to disadvantage employees on long term sick leave, since employers may look to terminate relationships rather than face an ongoing cash cost for an unproductive worker. Further, the House of Lords has left unanswered certain important questions, including how employers should reconcile the European Court of Justice’s decision with the Working Time Regulations, which provide that statutory holiday must be taken in the holiday year in which is accrues and cannot be carried forward.
We expect to see more cases on this point in the coming months, unless the government steps in to amend the Working Time Regulations.
For now employers should review their policies and procedures for sickness absence to ensure proactive management of absentees and an early assessment of when they are likely to be fit to return to work.
The prognosis for any employee who is currently on long term sick leave should also be reviewed to assess whether a return to work in the near future is realistic, or whether termination of employment on grounds of incapacity is appropriate ( although this will crystallise the employee’s claim for accrued holiday during the course of the absence). The government’s proposals for new “fit notes”, (see Resources below) may provide some assistance in this regard.
Many employers offer permanent health insurance as a benefit to employees. Some but not all of these policies cover the cost of holiday pay and a review of cover is recommended. If an employee is already in receipt of such benefits or is expected to qualify for them shortly expert advice should be sought before any steps are taken to end their employment.
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