23 March 2018
In a decision likely to infuriate employers, the vexed question of whether an entitlement to paid holiday accrues during long term sick leave has now been answered in the affirmative by the European Court of Justice. The decision leaves employers having to foot the bill for holiday pay, even where a worker has not been able to work for the entire leave year.
The judgment comes just as the statutory minimum entitlement to paid leave in the UK is about to rise to 28 days. One of the questions to be resolved in its aftermath is whether the additional UK entitlement is included in the scope of the decision, or whether it is limited to minimum period of four weeks prescribed by the Directive.
The decision was handed down in two cases – the English case HMRC v Stringer and the German case, Schultz Hoff.
Various questions were put to the European Court of Justice:
In Stringer, the questions were:
- does the Working Time Directive mean that a worker on indefinite sick leave is entitled (i) to designate a future period as paid holiday and (ii) to take paid holiday, in either case during a period that would otherwise be sick leave?
- if an employee is being paid an allowance in lieu of paid holiday on termination of employment having been absent on sick leave for all or part of the holiday year does the Directive impose any requirements or lay down any criteria as to whether the allowance is to be paid or how it is to be calculated?
In Schultz-Hoff the questions were similar but some additional points were raised:
- can national law stipulate that an entitlement to paid holiday is lost if workers become incapacitated for work during the holiday year before holiday is authorised and do not recover their capacity for work before the end of the holiday year (or any carry-over period laid down by statute, collective agreement or individual agreement)?
- can national law stipulate that workers will not receive an allowance in lieu of holiday if, up to the end of the holiday year or the relevant carry-over period, they are incapacitated for work and/or if after the ending of the employment relationship they draw a disability or invalidity pension?
- does the entitlement to annual holiday or an allowance in lieu require the worker actually to have worked during the holiday year, or does the entitlement arise also in the case of excusable absence (by reason of illness) or inexcusable absence in the same holiday year?’
The Court came to the following conclusions:
The Directive does not rule out national legislation or practices according to which a worker on sick leave is not entitled to take paid holiday during that sick leave. This means that UK law could allow employers to refuse to designate a period of sick leave as holiday and pay the employee accordingly.
However it does rule out national legislation or practices that provide that the right to paid holiday is lost at the end of the leave year and/or of a carry-over period laid down by national law. That is the case even where the worker has been on sick leave for the whole or part of the leave year and where his incapacity to work continues until his employment ends. This means that even if the sick employee cannot take paid holiday whilst on sick leave, that employee must be allowed to take the holiday at a later date, if he returns to work.
The Directive also rules out national legislation or practices which provide that, at the end of employment no allowance in lieu of holiday pay is to be paid to a worker who has been on sick leave for the whole or part of the leave year and/or of a carry-over period, if that is the reason why he could not exercise his right to paid annual leave. The payment in lieu must be based on the worker’s normal remuneration and must be calculated in the same way as normal holiday pay. This means that employers will have to compensate employees for any accrued holiday even if they have not been able to work for the entire year.
The House of Lords will have to consider UK law in light of the judgment but will be left with no choice but to overturn a 2005 Court of Appeal decision that held that holiday did not accrue if an employee was absent for the whole leave year and employees were not entitled to be compensated for the lost leave.