Employment analysis: The Court of Appeal has ruled employees on long-term sick leave have a right to carry over their holiday allowance without seeking permission from their employer. Kevin Poulter, an associate in the employment department of Bircham Dyson Bell LLP, advises that reviewing contractual allowances and policies in this area will be essential to avoid future employment conflicts.
The Court of Appeal, Civil Division, in dismissing the employer’s appeal, decided that if a worker had a right under Working Time Directive (EC) 2003/88, art 7 to take annual leave at another time, it would be fundamentally inconsistent with the art 7 right to take leave at another time outside sick leave, to require the worker to serve a notice or to make a request to take paid annual leave during sick leave.
To what extent does this case clarify the law on sickness absence and holiday?
In NHS Leeds v Larner  EWCA Civ 1034,  All ER (D) 273 (Jul), the Court of Appeal has clarified an area of employment law which had previously caused some confusion to employers (and employees) over the past couple of years. Contradictory decisions in the lower tribunals have not assisted but a firm and concise judgment means the position, at least for the time being, is clear. The case involved a lady who had been absent through sickness for a period prior to her dismissal. The sickness straddled two holiday years. In making payment of her final salary, the employer did not take into account the previous year’s unused holiday as the employee, Ms Larner, had not taken the leave or asked for it to be carried over. The Court of Appeal decided she should be paid for the period of untaken holiday regardless.
This clarification of the law will not sit well with many employers and it suggests that untaken holiday pay may be rolled over indefinitely from year to year without it being necessary for the employee to have requested it. This may be limited to sickness absence, as in the present case, but there may be some argument that the right under the Working Time Regulations 1998, SI 1998/1833 would extend to those who, for example, may claim they have been too busy to take holiday or were not permitted the opportunity to take holiday (it is not unusual for some employers to ban holiday for months at a time where there is a particular need for employees to be in work).
What does this case mean for employers?
It will be essential for employers to constantly think about those on long-term sick leave, even those who are no longer being paid normally and are being paid Statutory Sick Pay (SSP). It is all too easy for these employees to be out of sight and out of mind until there is a redundancy, transfer or other dismissal when there could be a significant accrual of holiday pay from year to year.
Alternatively, it will be the case employees returning from long-term sick leave will have accrued sufficient holiday to mean that, even once returned, they may rarely be in the workplace as they make use of their holiday before it expires.
It is now more important to act quickly and sensibly manage employees who are absent through sickness, especially those on long-term sick leave. Whether this means considering a return to work on reduced duties, where possible, or considering a dismissal on capability grounds will depend on the individual circumstances. However, this could lead to premature decisions being made and open employers up to potential claims of disability discrimination.
There is a case for the limitation of how long leave may be carried forward for. Recent cases in Europe have confirmed that a carry over period to allow holidays to be taken, or otherwise lost, can be limited by an employer. The ECJ decided a limitation of the carry over period to nine months after the end of the relevant leave year was incompatible with the Working Time Directive, but a limitation of the carry over period to 15 months was acceptable.
How will it impact on employment contracts?
Employers should review their employment contracts and detail the policy for carrying over holiday entitlement for all employees. Although this decision may be subject to further change, it is only in respect of statutory holiday allowance protected by the Working Time Regulations. Contracts should state that only statutory holiday (currently 5.6 weeks FTE) can be carried forward.
How does the CA decision sit with the European legislation?
The European Court has concluded that there is one question to answer—is there a legal requirement that a person on sick leave, who wishes to carry forward an entitlement to paid annual leave to another leave year, should make a request to the employer to do so? In the present case, if this was answered in the positive, then Ms Larner’s case would have failed. As no European ruling has laid down a principle that an employee must make a request to carry forward the leave in order to establish this right, Ms Larner’s case succeeded.
However, as detailed above, there may be some scope for limiting the period the holiday may be rolled over for. This is something the domestic courts have not yet had the opportunity to consider.
What advice would you give employment lawyers in the wake of this case?
Reviewing contractual allowances and policies in this area will be essential. Ensuring provision is made for only statutory, and not any additional contractual, entitlement to annual leave will carry over in circumstances of long-term absence for whatever reason. But it will be more important to keep up with any future developments. Employers and their advisers will need to be ready for change and be able to react quickly. Employers need to take positive steps to manage long-term sickness absences and remain in contact with employees who are absent from the workplace.
Interviewed by Kate Beaumont.
This interview first appeared in LNB News on 3 August 2012