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Employment Update: Holiday and Sick Leave - Limit imposed on carry over

Posted on 10 July 2015

Employment Update: Holiday and Sick Leave - Limit imposed on carry over

With the holiday season fast approaching, the Employment Appeal Tribunal has grappled with the issue of the extent to which a worker who has been on long-term sick leave can carry over their unused holiday. In what has been a continuing concern ever since the Stringer case first established in 2009 that workers on sick leave continue to accrue their holiday, the EAT has now provided some long awaited comfort for many employers by deciding that the carry-over in these cases is limited.

What was this recent case about?

An employee had been on sick leave for four years when his employment terminated in 2014. He argued that he should receive a payment in lieu for three leave years in which he had not taken any holiday.  His employer resisted the argument on the basis that, although he had been on sick leave, the employee had not been "unable" to take the leave and therefore he should not be allowed to carry any holiday over to the next year. The employment tribunal initially agreed with the employer, but when the case reached the EAT, it held that the tribunal was wrong and that there was no need for the employee to show that he had been unable to take the leave. Instead, the EAT confirmed, the employee has a choice: he can take the annual leave during a period of sick leave if he wishes, but he is not required to do so. If he does not wish to take it, he may take it a later date, which may include carrying the holiday over to a subsequent leave year.

How does it differ from previous cases?

Having established the right to carry over untaken holiday to a subsequent leave year – consistent with the Court of Appeal case of Larner (which we reported here) – the EAT then went on to consider whether there is any limitation on the period for which an employee may carry forward annual leave accrued in one year to later years.

Guided by EU law, it confirmed that workers on sick leave do not have an unlimited right to carry over annual leave to subsequent years. However, it then went further to say that even though the UK has not yet introduced a time limit into the legislation, a specific time limit can nevertheless be read into the Working Time Regulations. That specific time limit is 18 months from the end of the relevant leave year in respect of which the worker seeks to take accrued holiday (or payment in lieu if the employment is terminating). Any holiday accrued in previous years will not continue to carry over.

Impact for employers

The decision is particularly helpful for employers with employees who have been on long-term sick leave spanning several years. Until now there has been a real concern that when those employees either return to work or leave employment, the employer would be faced with a substantial liability in respect of many years' worth of accrued holiday. Although there is already some limited comfort in the fact that the carry over only applies to the four weeks annual leave under the EU Directive, over a number of years this still adds up to a significant amount. Now, with an 18 month limit, there will be more certainty for employers, who will have a much clearer idea of the extent of any potential cost to the business.  A word of caution however: the parties in the case have been given leave to appeal to the Court of Appeal, so the wait for a definitive answer continues…

For more information, or to discuss any other employment issues, please contact Daniel Naftalin.