This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

25 July 2012

What a carry on: holidays and sick leave after NHS v Larner

One of the most complicated and confusing areas of employment law has today become a little bit clearer, even though most employers would have been happier that it hadn't.

Workers are entitled under the Working Time Directive to a minimum period of four weeks' annual leave per year. The Working Time Regulations extend this entitlement to 5.6 weeks to take into account bank holidays. The annual leave allowance is generally subject to a 'use it or lose it' rule, whereby an employee may not store up their annual leave entitlement from year to year. However, there is an exception to this rule. If an employee is unable to take annual leave because they have been on sick leave, they may, in certain circumstances, carry forward the leave from one year to the next.

There had, however, been some uncertainty as to the extent to which workers could enjoy the carry forward right. The case that established the principle of carry forward involved a worker who had requested to take the leave but had been refused. The question therefore remained as to whether a worker needed to make the request in order to retain the right: if they had not been prevented by their employer from taking leave, did they lose the right to it?

This morning, the Court of Appeal gave its decision in the case of NHS v Larner. Mrs Larner had been away on sick leave throughout the leave year 2009 – 2010. Her employment terminated in 2011, while she was still off sick. She was not paid her accrued holiday from 2009 – 2010; the NHS argued that she had not asked for it in 2009 – 2010, and therefore was not entitled to it. As a public sector worker, Mrs Larner was entitled to rely on the Working Time Directive rather than the Working Time Regulations, but the Court of Appeal said that the Working Time Regulations should also be read in the same way and therefore workers in the private sector would be similarly protected.

The Court of Appeal decided that a worker on long term sick leave was entitled to carry forward annual leave, whether or not they requested it in the relevant leave year. They were also entitled to be paid in lieu of the leave if their employment was terminated before they had an opportunity of taking it. The only point that was not decided, as it had not formed part of Mrs Larner's original claim, involved whether the additional 1.6 weeks' holiday conferred by the Working Time Regulations could also be carried forward.

This case closes one of the loopholes that appeared to be open to employers trying to avoid what can amount to significant liability. While another case has held that it is theoretically lawful for domestic law to put a limit on the amount of holiday that can be carried forward from one year to the next, this will require a change to the Working Time Regulations before it can benefit employers in the UK. At present, a worker can carry forward holiday from one year to the next until they are ready to return to work or until their employment terminates (whichever is the sooner).

Employers should therefore be making provisions for holiday pay in respect of workers on long term sick leave. They can either suggest that workers take paid holiday while off sick (but cannot compel workers to take holiday in these circumstances), or allow the worker to take the holiday on their return. If the worker's employment is terminated before they can take the leave, employers will need to pay in lieu.