We have an employee who has been on long term sick leave since June 2010. We have followed a capability procedure and now propose to terminate employment. The employee has not taken or requested to take any holidays or to carry over any holiday during his absence. I therefore understand that we do not need to pay holiday pay for the years preceding the current holiday year. However the employee is claiming that he is owed accrued holiday pay for the period since June 2010. Our holiday year runs from 1 January to 31 December. How do I handle it?


Sharon McArdle writes:


The answer to this question essentially depends on whether a Tribunal would decide that the employee was required to request annual leave or carry-over whilst absent through sickness. Readers will know that workers continue to accrue annual leave during sickness absence and are permitted to take statutory annual leave while they are sick, following decisions of ECJ and House of Lords in Stringer –v- HM Revenue & Customs.

Carry-over of annual leave is expressly prohibited by regulation 13(9) of the Working Time Regulations 1998 (“WTR”) which provides that annual leave can only be taken in the leave year in which it is due. However, the ECJ in Stringer stated that carry over should be allowed where a worker is denied the benefit of annual leave because they are sick. Furthermore, in the case of Pereda –v- Madrid Movillidad SA, the ECJ made it clear that under the Working Time Directive, workers are entitled not to take their holiday while they are on sick leave and should be able, at their request, to carry leave over to the next year so as to not lose their entitlement.

The effect of the combination of these two ECJ decisions would appear to be that while a worker may take annual leave while they are sick, if they do not wish to do so they must be permitted to take it at another time, including, if necessary, in the next leave year.

A number of UK decisions have given effect to the ECJ’s decisions, indicating that workers can carry over holiday to the next year where they have been on long term sickness absence despite the express prohibition in regulation 13(9):

• In NHS Leeds v Larner [2011] IRLR 894 the EAT held that in light of Pereda the employee’s holiday entitlement had carried over to the next leave year;

• In Fraser v South West London St George’s Mental Health Trust [2012] IRLR 100, the EAT implicitly accepted that a sick worker’s holiday entitlement under WTR can carry over to the next leave year;

• In Shah –v- First West Yorkshire Limited, a UK Employment Tribunal added words to Regulation 13(9) of the WTR allowing carry over, on the basis that this was consistent with the “underlying thrust” of the WTR;

• In Rawlings –v- The Direct Garage Door Company Limited ET/2800547/2006 a UK Employment Tribunal held that a worker who had been on sick leave for the last 15 months of his employment was entitled to statutory holiday pay in respect of that period via an unlawful deduction from wages claim.

A number of decisions have found that carry over is only permitted where the worker actually requests to take or carry over their holiday entitlement:

• In Khan v Martin McColl ET/170292909, an employment tribunal dismissed a claim for holiday pay by a worker who had been on long term sick leave on the basis that he had not requested holiday and so had not been “denied it”.

• In FX Walsh –v- Lancashire Care NHS Trust a UK Employment Tribunal held that the Claimant had lost or relinquished his entitlement to holiday pay in the relevant years because he had not sought to take and be paid for holidays in each of the relevant leave years.

However it must be noted that these are tribunal decisions, and the recent EAT decision of NHS Leeds v Larner has departed from this position. In Larner the EAT held that entitlement to paid annual leave of a worker absent for the whole of a pay year through sickness does not depend on the worker submitting a request for that annual leave before the pay year ends.

The EAT found that, as Mrs Larner was signed off sick for the whole of the pay year 2009 to 2010, she was presumed not to have been well enough to exercise her right to annual leave. Instead she had the right to have her leave entitlement carried over to the following year, and she had that right, without having to make a formal request for the leave to be carried over. The right to be paid for that annual leave crystallised on the termination of her employment.

The Larner decision was quickly followed by a decision of a differently constituted EAT in the case of Fraser v Southwest London St George’s Mental Health Trust. In that case it was held that an employee is only entitled to holiday pay if he or she has actually taken the leave in respect of which they seek to be paid, and has done so in accordance with the WTR by giving notice in accordance with Regulation 15.

It is unfortunate that the EAT should have issued two conflicting decisions within a short space of time. Larner has been appealed to the Court of Appeal. The appeal was heard on 27 March 2012 and a decision is awaited. It is hoped that the Court of Appeal's decision, when issued, will provide much needed clarification on this issue.

Whilst we wait the decision of the Court of Appeal in Larner, employers have three basic options with regard to holiday entitlement of sick workers:

• reinstate the worker’s holiday entitlement for the affected days, and allow that holiday to be carried over to the next leave year if necessary;

• only allow carry-over of sickness affected holiday if the employee has made a request to take the annual leave during the leave year in which it is due. It would be advisable for employers who wish to follow this course of action to confirm in their sickness policy that for carry over to apply in these circumstances, a request to take or carry over the annual leave must be made in the current leave year;

• continue with “use it or lose it” policy, relying on the express wording of Regulation 13(9). This would prevent the build-up of holiday entitlement. However, case law such as Larner suggest that this will be a breach of the WTR.

Option (a) would be the safest course of action in terms of avoiding claims, however it does carry a cost burden. Option (b) could be followed until the Court of Appeal decision is issued, when employers can review the position.