25 February 2009
Annual leave accrues for employees on long term sick leave

The European Court of Justice (“ECJ”) has ruled that a worker on long-term sick leave accrues his or her statutory annual leave even if they have not worked for the preceding year.
The decision follows referral to the ECJ from both the English and German courts. The UK case Stringer and others v HM Revenue and Customs (HMRC) and the conjoined case of Schultz-Hoff v Deutsche Rentenversicherung concerned similar sets of circumstances.

In the UK, the Court of Appeal had held that a worker absent on long-term sick leave could not claim annual statutory leave or holiday pay for the time they were absence from work. In addition the workers should not receive compensation for lost holidays if they left their job before returning to work from sick leave. The basis of this decision was that the right to four weeks paid holidays is a reward for working.

The references to the ECJ sought guidance on four points.

• Is there any entitlement to annual leave if a worker has been on sick leave for the whole of the leave year?
• Can a worker on indefinite sick leave give notice to take annual leave and take that leave during a period that would otherwise have been sick leave?
• Can Member States provide that the right to take annual leave is extinguished if not taken within the leave year due to sick leave?
• Can a worker who has been absent on sick leave for all or part of the leave year claim payment in lieu of those untaken days on termination of employment?

The ECJ ruled as follows:

• A worker who is on sick leave for the whole of an annual leave year is entitled to a period of four weeks’ paid annual leave, despite the fact they are not actually at work.
• It is for the Member States to decide if annual leave can be taken during sick leave.
• A worker who is absent on sick leave for the whole leave year and so has not taken their annual leave, must be allowed to carry over their leave to the next leave year.
• On the termination of employment, the worker is entitled to a payment in lieu in respect of their accrued leave.

Practical impact of ECJ ruling

While leave is accrued by a worker on sick leave Member States can decide whether or not to allow annual leave to be taken during sick leave provided the option to take annual leave is not lost. Ultimately, this leave will have to be taken during sick leave or after, even if this means carrying over the leave into the next holiday year. Compensation for accrued but untaken holiday can no longer be reduced to account for sick leave.

The ECJ decision brings some clarity to an issue which has bounced back and forth for a number of years. However, the judgment has potentially serious financial and practical ramifications for employers, and a full review of sickness, holiday and maternity policies should be carried out without delay.

For public bodies the impact will be felt immediately under the principle of direct effect. For private companies there is no immediate impact until the House of Lords make their ruling on this case. However it is likely that the House of Lords will overturn the Court of Appeal’s earlier ruling in light of the ECJ’s findings.

In the meanwhile workers who potentially have a claim regarding holiday accrued whilst on sick leave will want to protect their position by making a claim to an Employment Tribunal to avoid being time barred. When doing so they may request a ‘stay’ from the Employment Tribunal until the House of Lords makes it ruling.