The Employment Appeal Tribunal (“EAT”) has at last given employers welcome clarification on the outstanding issue of how much holiday a worker should be permitted to carry over from one holiday year to another when they are off sick long term. It has already been determined in NHS Leeds v Larner (2012) that the 20 days statutory holiday, which is provided for in Regulation 13 of the UK Working Time Regulations 1998 (“WTR”) and which derives from the European Working Time Directive (“WTD”), should be carried over into subsequent holiday years where a worker on sick leave is unable or unwilling to take it. However, with the prospect of an employee returning to work to only be taking almost immediately a significant period of holiday or receiving a potentially substantial “holiday” payment on termination, the concern has been for how long must this carry over continue?
What did the EAT say?
- The EAT accepted that an employee on sick leave cannot be compelled to take their holiday entitlement under Regulation 13 WTR when they were unable to take it or did not wish to take it, even though they may in fact be physically capable of doing so. In such cases, in line with European and domestic case law, such leave could be carried over into subsequent holiday years.
- However, there was no unlimited right to carry over holiday into subsequent years indefinitely. This would not meet the purpose of the WTD of “ensuring that a person had a period of rest and relaxation from work for health and safety purposes”. Therefore the maximum period for which holiday could be carried over was 18 months from the end of the leave year in which the annual leave arose. The EAT adopted a “modest alteration” to the words that the Court of Appeal (“CA”) had already read into Regulation 13(9) WTR following the Larner case so that it read:
“Leave to which a worker is entitled under this regulation may be taken in instalments but, (a) it may only be taken in the leave year in respect of which it is due, save that it may be taken within 18 months of the end of that year where the worker was unable or unwilling to take it because he was on sick leave, and as a consequence, did not exercise his right to take annual leave”.
(the additional words from this EAT are in bold and the previous CA decision in Larner are in italics).
- This meant that here, the employee who had been on sick leave from April 2010 until the termination of his employment in February 2014 and who had not taken any paid holiday during the holiday years 2010, 2011 and 2012 was entitled to a payment in lieu on termination of employment in respect of the 2012 leave year since that was within 18 months of termination. His claims in respect of the 2010 and 2011 holiday years failed. He had already requested and taken his holiday for 2013.
- The EAT has however granted permission for an appeal to the CA recognising that “the issues of entitlement to annual leave are important to both workers and employers alike. The issues that arise are arguable and involve complex questions of law in an area where EU law, in particular, is evolving”.
What does this mean for employers?
- Despite the prospect of an appeal, the decision is helpful for employers dealing with employees on long term sick leave. It accords with the previous European Court of Justice decision in the German case of KHS AG v Winfried Schulte, in which a maximum carry-over period of 15 months was upheld and also the ILO Convention 132 which expressly provides at Article 9(1) that paid annual leave must be granted and taken “no later than 18 months, from the end of the year in respect of which the holiday entitlement has arisen”. These were both factors on which the EAT relied.
- It should be remembered however, that this decision relates to the 20 days statutory leave provided under Regulation 13 WTR. It does not apply to the additional 8 days statutory leave provided under Regulation 13A and any additional leave over and above this provided for in the employment contract. Employers who have not already done so should review their sick pay and holiday provisions which we shall be happy to advise you further on.
It is hoped that the Government will at some point make appropriate statutory amendments to reflect the line of case law interpreting the Working Time Regulations 1998. In the meantime, employers can take at least some certainty from this EAT decision but must remain alert to further case law developments, including any appeal to the Court of Appeal and take these into consideration when such situations arise. If you have any questions on this issue, please do not hesitate to contact your usual OC Contact.