Left hanging

Employment lawyers and their employer clients have been anxiously awaiting clarification by the House of Lords on matters concerning workers on long-term sick leave, and their statutory holiday entitlement under the Working Time Regulations 1998 ('WTR'). However, the much-anticipated decision in HM Revenue & Customs v Stringer [2009] UKHL 31 unfortunately leaves a number of key issues unclear (see Solicitors Journal 153/23, 16 June 2009).

The case concerned two important points: first, whether workers are entitled to accrue and take paid statutory annual leave during a period of long-term sickness absence (even if they have exhausted all sick pay) or be paid in lieu for this on termination of employment; and secondly, whether workers can enforce their entitlement for unpaid holiday pay as an unlawful deduction from wages under the provisions of the Employment Rights Act 1996 (ERA).

A number of workers brought claims against HMRC for holiday pay. One case concerned a worker on unpaid sick leave who argued she should be entitled to take paid statutory holiday. The other cases involved workers whose employment had been terminated following long-term sickness absence who argued they were entitled to be paid in lieu for accrued untaken statutory holiday although they were on unpaid sick leave at the time of dismissal. One of those workers brought his claim for unpaid holiday pay as an unlawful deduction from wages. The tribunal and the EAT allowed the claims but the Court of Appeal upheld the appeal by HMRC. The workers appealed to the House of Lords which referred a number of questions to the European Court of Justice. The Luxembourg judges held that a worker was entitled to accrue, take and be paid for statutory annual leave while on sick leave but, if they were not allowed to do so, they must be entitled to carry forward the accrued and untaken leave and either be permitted to take it on return to work or be paid in lieu on termination of employment.

Bad news for employers

The lords unanimously held that claims for non payment of statutory holiday pay could be brought under the ERA as an unlawful deduction from wages as holiday pay fell within the definition of 'wages'. They overturned the Court of Appeal decision which held it was only possible to bring this type of claim under the WTR. The time limits under the WTR are much more restrictive; whereas a claim made under the ERA as part of a series of unlawful deductions can go back several years provided the claim is brought within three months of the last deduction. This decision is not good news for employers as it raises the possibility of workers on long-term sick leave bringing claims for unpaid holiday going back many years.

Much to the surprise and disappointment of many practitioners, the House of Lords decision focuses entirely on this issue. What was considered to be the main issue concerning the interpretation of the WTR in the light of the ECJ's decision on the entitlement to accrue and take annual leave while on sick leave is not addressed. This is because the parties agreed that the ECJ's decision meant the EAT decision on this point should be restored. What is clear going forward is that workers on long-term sick leave are entitled to ask for and take statutory annual leave (28 days for full-time workers) and should be paid in full even if they have exhausted all their contractual and statutory sick pay.

Unanswered questions

However, there remain many unresolved issues. For example, where the employee is being paid a percentage of his/her salary under a permanent health insurance scheme and requests annual leave, does this decision mean that employers are going to be required to 'top up' the payments for periods of holiday requested? Employers will need to ensure that if they do so they are not in breach of the terms of the scheme.

There are two issues which give rise to particular uncertainty for employers. First, it is unclear whether the worker actually needs to have requested annual leave to be able to bring a claim. There are two conflicting EAT decisions on this point: Kigass Aero Components v Brown [2002] ICR 697 and List Design v Douglas and others [2003] IRLR 14, which means further litigation is inevitable. Secondly, it is not clear how the ECJ decision about carrying over holiday entitlement would be interpreted. The WTR do not permit the carrying over of leave or the making of any payment in lieu except on termination of employment.

This combination of questions means it is unclear how employers should treat those who have been on long-term sickness absence for several years and who have not requested holiday in the relevant holiday years but who ask for it now. Should employers only pay for the current holiday year until there is clarification of these issues from a higher court? Where does this leave a worker who has been refused a request or who has been unable to take the leave by the end of the particular leave year for some other reason? Public sector employees should be able to rely on the ECJ decision about carrying over, but it is unclear what the position of private sector employees is.

This position is unsatisfactory for lawyers and employers. What is clear is that employers will need to review their policies on holiday and sick leave and ensure that they comply with requests for the current holiday year. However, there are so many difficult, complex and unanswered questions that it is undoubtedly going to result in further litigation until these issues are resolved by the Court of Appeal or the House of Lords.