The Issue
Workers (which includes employees) have the right to paid statutory holiday of 4.8 weeks (rising from April 2009 to 5.6 weeks inclusive of Bank holidays).
The European Court of Justice ("ECJ") has now decided that workers absent from work due to long-term sickness are entitled to:
- take paid statutory holiday; and/or
- be paid in lieu of accrued statutory holiday if their employment terminates whilst on sick leave.
The ECJ decision, which considered these issues in respect of two European cases concerning the minimum 4 weeks' statutory holiday provided to workers by European legislation, overturns current UK law established since 2005.
The Consequences
The ECJ judgment confirms these general principles:
- workers on sick leave continue to accrue statutory holiday;
- workers are entitled to paid statutory holiday irrespective of whether they are at work or on sick leave during the leave year;
- national legislation or national practices can prevent workers from taking (and being paid for) statutory holiday whilst on sick leave, provided however that workers are given the opportunity to exercise that right during another period (for example, on their return to work from a period of sick leave). The ECJ held that a worker who is on sick leave for the whole leave year (and beyond any permitted carry-over period laid down by national law) will be considered to have been denied an opportunity to benefit from his paid annual leave. Such workers must therefore be given another opportunity to exercise their right to take paid statutory annual leave;
- alternatively, national legislation or national practices can allow workers to take statutory holiday whilst on sick leave;
- the right to paid annual leave is not lost if untaken by the end of a leave year even where a worker has been on sick leave for the whole of that leave year or where his incapacity to work continues until the end of his employment;
- on termination of the employment relationship workers who have been on sick leave for the whole or part of a leave year are entitled to a payment in lieu of accrued but untaken statutory holiday up to the termination point. The payment in lieu of accrued holiday, must be a payment equivalent to their "normal remuneration".
The UK Working Time Regulations which provide that workers must take and be paid for their statutory holiday in the current holiday year or lose it now require review by the House of Lords.
The ECJ judgment affects public sector organisations immediately whilst private sector employers must await the House of Lords decision on the impact of the ECJ decision on the UK Working Time Regulations.
The ECJ judgment also impacts on businesses which offer employees permanent health insurance ("PHI") since such policies will usually require that the individual remains employed to receive the PHI benefit but that benefit does not cover accrued holiday cost.
The Solution
- Businesses should review the operation of their annual leave and sick leave policies to ensure compliance with the ECJ's decision which the House of Lords is expected to follow.
- Businesses should now take a more proactive approach to those employees on sick leave who do not have the benefit of PHI cover and consider capability termination sooner but balance that with any disability discrimination liability risk.
- The ECJ judgment relates to statutory holiday only. Businesses can therefore provide that contractual holiday in excess of statutory entitlement (if any) does not accrue during sick leave, subject to consideration of any disability discrimination impact. However, the extension of statutory holiday to 5.6 weeks including Bank Holidays from April 2009 may eliminate the differential between statutory and contractual holiday.
- Businesses should ensure that holiday, sickness absence and maternity leave policies deal appropriately and clearly with workers' statutory and contractual holiday entitlements.
- Businesses should carefully monitor those on long-term sickness absence and ensure that on return to work they are permitted to take accrued statutory holiday.
- If a worker is absent on sick leave when their employment terminates, payment in lieu of accrued statutory holiday should be made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.