Accrual of statutory annual leave and sickness

An overview of key points relating to annual leave and sickness from the most important cases, together with frequently asked questions on this issue.
Agenda for change

5 November 2019

There have been a number of high-profiles decisions on the relationship between holiday rights and sickness in recent years. Read key points from legal cases below.

HMRC v Stringer

In 2009 the European Court of Justice (ECJ) held that workers on sick leave continue to accrue annual leave and that if workers are not given the opportunity to take annual leave during this time, they should be permitted to carry it over to the next leave year. When the case was remitted to the House of Lords it was confirmed that holiday could be taken whilst a worker is on sick leave.

Pereda v Madrid Movilidad SA

The ECJ found that the European Working Time Directive (EWTD) requires that where a worker is unable to take pre-arranged statutory annual leave in the relevant leave year due to sickness absence before the leave commences, the worker should have the option to designate a different period for the annual leave even if this requires carry over.

Asociacion Nacional de Grandes Empresas de Distribucion (ANGED) v Federation de Asociaciones Sindicales (FASGA) and others

The ECJ confirmed that where a worker becomes sick during statutory annual leave (as opposed to before statutory annual leave as was the case in Pereda), the worker should be entitled to take the annual leave at a later date, even if this requires carry over.

NHS Leeds v Larner

The Court of Appeal (CA) made a decision on the issue of whether workers need to request to take leave before the entitlement to leave/payment arises. The CA decided that such a request is not required under the Working Time Regulations (WTR) where the worker is unable (or unwilling) to take annual leave because of sickness (see Q&A below).

KHS AG v Schulte C

On a separate issue, the ECJ has also given its decision in the case of KHS AG v Schulte C. The case looked at the question of whether there is a limit to the length of time an employee on long term sick leave can continue to carry forward untaken annual leave. The ECJ held that the EWTD does not require unlimited carry over and that a backstop of 15 months was permissible. However, this case was about a German collective agreement so it is not clear whether it will be followed here.

Sood Enterprises v Healy

Most recently of all the Employment Appeals Tribunal (EAT) has held that the amount of annual leave which may be carried over to a new leave year is four weeks (the entitlement under the EWTD). The EAT confirmed that, in the absence of a "relevant agreement" under reg.13A (7) of the WTR, the additional 1.6 weeks' annual leave under regulation 13A of the WTR does not carry over. In effect this means that a full time worker can only carry over 20 days not 28 days.

Working Time Regulations

The government is currently reviewing the WTR so we anticipate there will be future changes in any event. We will update employers as soon as more details are known.

Guidance from the Department for Business, Innovation and Skills

The Department of Business, Innovations and Skills (BIS) has published guidance on the relationship between sick leave and paid statutory annual leave which broadly reflects the outcome of the cases outlined above.

FAQs for employers

1. What did the European Court of Justice and the House of Lords in Stringer say regarding sickness absence and annual leave?

The case provided some clarity in this area and later cases, particularly Larner and Healy have clarified some unanswered questions. In a nutshell the Stringer case says that workers can accrue and take statutory annual leave under the WTR during sick leave. Workers who are denied holiday pay can bring a claim under the WTR or as an unauthorised deduction from wages claim, which has a more generous time limit.

2. Can annual leave be carried over from one year to the next?

Yes, if a worker on sick leave has not had the opportunity to take their minimum holiday entitlement (provided for by the WTR) in the current leave year, they are able to carry forward into the next leave year any untaken amount of this 20-day entitlement.

The Healy case confirmed that the amount of leave that should be carried forward to a new leave year is limited to 20 days (for a full time worker) under regulation 13 rather than 28 days under regulations 13 and 13A of the WTR.

3. Does this mean that any member of staff absent for any length of time can carry forward their untaken annual leave into a new holiday year?

Only if an individual has been unable to take their holiday entitlement because of sickness absence.

The Stringer case was specifically concerned with workers who had been absent for an entire holiday year. Employers should therefore allow workers in such circumstances to carry forward into the new leave year 20 days statutory annual leave entitlement.

However, if an individual is able to take their outstanding annual leave on their return to work before the holiday year expires, they should do so. If they choose not to this holiday will be lost and cannot be carried over. (We are advised that this is still the case, despite the recent decision in Larner.) If, however, there is insufficient time left in the leave year to enable them to take their accrued annual leave, they should be allowed to carry this leave forward into the new leave year.

4. What if the worker's employment has ended?

If, but only if, a worker’s employment ends before having had the opportunity to take their annual leave entitlement due to sickness, the worker is entitled to a payment in lieu at the normal rate of pay (see also 6 and 8 below).

5. Does the worker need to request to take leave before the entitlement to leave/payment in lieu of leave arises?

If the worker is sick for the complete leave year or where they return to work but there is insufficient time left in the leave year to enable them to take their accrued leave:

  • they must be allowed to take it at another time, if necessary by carry over into the next leave year; and
  • payment in lieu of accrued but untaken leave on termination must include payment for untaken leave which has been carried over (see question 6 below);
  • this applies regardless of whether the worker made a request for leave (or to carry over untaken leave).

If the worker had the opportunity to take their holiday after recovery, we remain of the view that the worker should request and take holiday before the expiry of the leave year. If they choose not to do so, this holiday will be lost and cannot be carried over or compensated for on termination.

6. Is there a limit to the length of time an employee on long-term sick leave can continue to carry forward untaken annual leave?

The ECJ Schulte case suggests there is a backstop of 15 months in which to take the carried over holiday. So, all holiday not taken within 15 months of the end of the relevant leave year could be lost. This case may be applicable in the UK but until it has been considered by the UK courts we will not have certainty.

The Government is currently consulting on this issue and so amendments may be made to the WTR to deal with this point.

7. Can an employer require a worker to take accrued annual leave whilst they are on sick leave or as part of a phased return?

If a worker wishes to take WTR annual leave whilst on sick leave or as part of a phased return, employers should allow them to do so. Indeed, some employers may wish to encourage workers to take leave as if workers take a notional period of paid annual leave before the expiry of the current leave year there will be no issue in relation to carry over. However, we recognise some employers will prefer not to take this approach. What now appears to be clear, following the Pereda and ANGED decisions, is that employers cannot insist that a worker takes annual leave whilst they are on sick leave, if they do not wish to do so. This was also confirmed in Larner.

8. On termination of employment how far back should employers go in terms of calculating payment in lieu of accrued but untaken leave?

The workers in the Stringer case were claiming pay in lieu of holiday accrued in the holiday leave year during which their employment was terminated. The implication from the decision, however, is that there is a risk workers may be able to take all holiday accrued, or be paid on termination for holiday accrued going back a number of years. The worker could claim accrued holiday pay under UK law for at least the last six years.

However, a number of matters may limit a worker’s ability to make an employment tribunal claim relating to that leave. For example, the 15 month backstop in Schulte (see question 6 above). It is certainly open to NHS organisations (as public sector organisations to whom the EWTD is directly applicable) to argue that the carry over of annual leave should be limited to a 15 month period with the understanding that this may well be challenged by the worker as we do not have a UK decision on this point.

Also, the worker may be out of time to make such a claim. Larner made it clear that NHS workers can make a claim under the EWTD. That could mean NHS workers are able to back date their claims more than 6 years, possibly going back to 1998 when the WTR were introduced in the UK. However, we are advised that such a claim is unlikely to succeed for various reasons. A claim under the EWTD is more complex, employers may wish to take specific legal advice if faced with such a claim.

9. How much holidays will workers accrue per year whilst on sick leave?

For each full annual leave year from 1 April 2009 onwards, workers will accrue 5.6 weeks of annual leave. The decisions referred to throughout this guidance only relate to WTR annual leave, not the contractual annual leave provided for under the national agreements.

However, following the Healy case, in the absence of a relevant agreement whereby the additional 1.6 weeks shall carry over, accrued holiday for previous leave years may be limited to 20 days (including public holidays) under regulation 13 of the WTR.

We recommend that annual leave and sick leave policies make clear that only statutory holiday accrues during periods of sickness absence.

10. If a worker falls sick before or during their pre-arranged statutory holiday - can they cancel that holiday and take it a later date?

Yes, the decisions in Pereda and ANGED made it clear that a worker who becomes "unfit for work" before or during a pre-arranged statutory holiday has the right to reschedule the affected holiday for a later date. Moreover, if there is insufficient time left in the leave year to enable them to take this leave, they should be allowed to carry this leave forward into the new leave year.

11. If the worker falls ill during their pre-arranged statutory holiday, are they entitled to reschedule the full leave period (including the days on which the worker was healthy)?

No, the worker can only reschedule the period of planned leave which coincides with the unfitness for work.

12. Can an employer ask the worker to prove that they have fallen ill during annual leave before allowing the worker to reschedule the affected holiday?

Yes, we consider that an employer is entitled to ask for medical evidence of unfitness for work (over and above self-certification) if sickness occurs during a holiday. As it is an unusual situation, employers should make clear this applies regardless of how long the sickness lasts. We consider employers can also require workers to report sickness to their manager on the first day they become unfit for work.

13. Should employers change their policies on holiday and sick leave in light of Stringer and Pereda?

Given the various cases, we think it would be wise to look at annual leave policies on the subject of sickness during annual leave, carry over leave and taking leave where a worker has been absent for part of a leave year. There are no proposed amendments to national terms and conditions. To minimise the risk of any challenge, employers need to be able to show that they have taken a reasonable and consistent approach to the various issues around sickness and annual leave set out in this note.

14. What is the effective date of these changes?

Legally, the case law will probably be taken as stating the law as it has always been since the WTR were introduced in 1998.

15. You refer to 'workers' throughout. Why?

The WTR apply to workers which is a wider definition than that for employees, for example it covers bank staff.