Skip to main content

The working time directive: holidays and sickness absence

For many years there was considerable uncertainty as to whether workers on long term sick leave were entitled to be paid holiday pay during their sickness absence or whether they accrued holiday during long term sickness absence. Two European Court (ECJ) judgments went some of the way to answering these vexed issues. Stringer v HMRC and Pereda v Madrid Movilidad set out the law that must be applied by tribunals.

In Stringer, it was confirmed that employees on sick leave continue to accrue holiday rights. In Pereda, it was held that when a worker’s prearranged holiday coincides with a period of sick leave, the worker has the option to designate an alternative period to take their holiday entitlement, even if this means carrying it into the next year.

What is the law relating to Working Time Regulations and holidays?

Workers are entitled to holiday in three ways:

  • Four weeks holiday allowed for under the Working Time Directive and put into law in the UK by the Working Time Regulations 1998 (WTR);
  • A further 1.6 weeks holiday granted by the Working Time (Amendment) Regulations 2007 above that required by the Directive;
  • Contractual holiday in excess of the statutory right.

The Stringer and Pereda judgments apply to the minimum four weeks guaranteed by the Directive.  The judgments do not apply to contractual holiday over and above the statutory minimums and as far as carrying over unused holiday into another leave year, this principle does not apply to the additional 1.6 weeks.

Rescheduling sickness affected holiday

The ECJ decision in Pereda states:

  • That a worker who suffers ill-health during a period of previously agreed holiday has the right to reschedule that holiday to a later date; and
  • If the worker remains sick to the end of the holiday year, he will be able to carry the holiday forward into the next year.

In NHS Leeds v Larner, the Court of Appeal held that where an employee is unable to take holiday during a leave year because they have been absent on long term sick leave, that holiday entitlement would carry over to the next leave year. Further there is no requirement for the employee either to request to take the holiday or request that it be carried over. The decision only concerned the 4 week leave entitlement.  

However, where an employee's sickness absence straddles multiple leave years, the Working Time Regulations 1998 do not require unlimited carry over. In Plumb v Duncan Print Group Ltd the EAT confirmed that it is consistent with the Working Time Directive to limit the carry of of statutory leave (the 4 week leave entitlement conferred by the Directive) to 18 months from the end of the relevant leave year in which the sick worker has been unable or unwilling to take it. 

The position as to whether unused holiday relating to the 1.6 week entitlement should be carried over if an employee is unable to take it due to long term sickness has now been clarified in the EAT case of Sood Enterprises Ltd v Healy.  In that case the EAT held that as the additional 1.6 weeks leave was over and above the minimum required under the Directive, it was not a breach of the Directive to prevent workers carrying that leave over to the next leave year.

The principle in Sood Enterprises also applies to the calculation of accrued but untaken holiday pay when someone leaves the organisation so that an employee on long term sick leave may only carry forward and be paid for untaken holiday in line with the 4 week entitlement, unless their individual employment contract or organisation’s procedure says otherwise.

Preventing abuse

In terms of employees wanting to reclassify holiday as sick leave there is scope for abuse and so, we recommend that your policies should require that the worker:

  • Notify you on the first day they fall ill and on each subsequent day (subject to exceptional circumstances);
  • Provide a medical certificate from the first day of absence rather than being able to self certify to qualify for company sick pay;
  • Put the request to reclassify the leave in writing; and
  • Discuss their absence with their manager at a return to work interview.

Another approach might be to restrict the right to receive contractual sick pay for an absence during holiday.

Taking holiday during sick leave

The Stringer decision established that workers have the right to:

  • Seek paid WTR holiday whilst on long-term sick leave, even if the worker has been absent from work for an entire holiday year;
  • Take the unused portion of their entire WTR holiday for the current year on return from a period of sickness absence; and
  • Carry forward unused holiday into the next leave year if it cannot be taken in the year for which it was accrued.

In order to take leave during a period of absence the worker will have to make a request in the normal way. The worker will be temporarily removed from sick leave and placed on holiday and will be entitled to holiday pay. This will be attractive to workers who have exhausted their right to contractual and statutory sick pay.

It is possible to serve a counter notice refusing such a request, but this does not remove the worker’s right to this holiday which they could take on their return to work. This might be in the subsequent holiday year potentially giving a worker two years’ holiday in one holiday year. If the worker is dismissed the employer will have to pay in lieu the value of accrued but untaken holiday.

Fixed holidays

The WTR give employers the right to specify when holidays can be taken. This might be because an employer has fixed shut-down periods; because they wish to avoid large amounts of holiday being accrued by employees on sick leave and taken on the worker’s return to work; or they want to avoid a large payment in lieu of holiday pay if a worker is eventually dismissed. Such an approach would be incompatible with the Pereda judgement. This is particularly problematic for employers who operate shut-down arrangements. If an employee has a sick pay entitlement that is substantially less generous than their right to holiday pay, then the employee is unlikely to seek to remain on sick leave. A contractual sick pay scheme could stipulate that sick pay during a shut down is at a lower rate to encourage employees to take holiday.

Carrying forward holiday leave

The WTR specifically prevents leave being carried forward into a subsequent holiday year. The Stringer decision gives individual countries the option of either allowing leave to be carried forward or to allow the holiday to be taken during the period of sickness absence. The Pereda decision indicates that under the Directive leave can be carried forward into a subsequent holiday year. The NHS Leeds v Larner and the Sood Enterprises Ltd v Healy decisions have clarified that the Pereda position of carrying over leave only applies to the 4 weeks Working Time Directive entitlement. (Of course, if they wish, organisations can choose to allow employees to carry over additional holiday entitlements or their procedures may in fact allow for it).

Carry over of holiday: COVID rules 

In response to the COVID-19 pandemic, the UK Government passed emergency legislation to allow employers extra flexibility to respond to workplace pressures and to protect workers from losing their statutory holiday entitlement. The Working Time (Coronavirus)(Amendment) Regulations 2020 enable workers to carry holiday forward where the impact of COVID-19 means that it has not been 'reasonably practicable' to take it in the leave year to which it relates. Where it has not been reasonably practicable for the worker to take some or all of the 4 weeks holiday due to the effect of COVID, the untaken amount may be carried over into the following 2 leave years

The term 'reasonably practicable' appears to be very broad and seems to encompass almost any COVID-related situation (e.g. self-isolation, increased work demands due to COVID, staff shortages etc.) Helpfully though, government guidance has clarified that employees who were furloughed during the pandemic are unlikely to need to carry over leave under the emergency rules as, in most cases, annual leave could be taken during the furlough period. However, if the employer could not afford to pay full pay for annual leave during furlough, this may mean that it was not 'reasonably practicable' for the employer to use up their leave. The government guidance suggests that carry-over of leave should be permitted in these circumstances. 

It remains the case that employees are not obliged to allow carry over of the additional 1.6 weeks leave, unless they wish to do so. The additional 1.6 weeks leave can be rolled over once, if there is a written agreement between employer and employee. 

Women on maternity leave

In Merino-Gomez v Continental Industries del Caucho SA (2004) the ECJ ruled that women cannot be on maternity leave and holiday at the same time. Women must be allowed to take their WTR holiday outside their period of maternity leave even if this means that the holiday is carried forward into a subsequent leave year.

Continuing liability for holiday pay

If an employee has been on sick leave for a substantial period, they may have a sizeable claim for holiday pay. Employees in this situation can either bring a claim under the WTR or an unlawful deduction of wages claim under the Employment Rights Act 1996 (ERA).Claims under the WTR must be brought within three months of a specific non-payment. Claims under the ERA can be brought within three months of the last of a series of deductions.

Claims under WTR may be problematic for workers, because of the strict time limits and because it may be necessary to make a new claim in respect of each non-payment (e.g. after each period of holiday). A claim for unlawful deduction from wages under ERA 1996 will usually be a more effective remedy. 

In any event, any claim for holiday pay following a lengthy period of sickness absence may be limited by the judgement in Plumb v Duncan Print Group (above) which held that holiday that is not taken due to sickness will effectively 'expire' 18 months following the end of the leave year in which it fell due. 

If you are faced with a claim relating to accrued but untaken holiday or you are contemplating dismissing an employee on long-term absence seek advice from your HR Rely advisor.