Absence & Holiday Entitlement

House of lords rules that staff accrue holidays while on sick leave (Stringer v Her Majesty’s Revenue and Customs).

This case concerned former employees of Her Majesty's Revenue and Customs (HMRC) who brought claims against their employer after requests for holiday/holiday pay were rejected due to long-term sick leave. One employee had requested annual leave during a period of sickness absence which HMRC refused. Others were dismissed following long-term sickness absence and claimed payment in lieu for outstanding holidays.

In January this year, the European Court of Justice (ECJ) ruled that workers accrue paid holiday for their entire sick leave and must be allowed to take it on return or be paid in lieu if their employment ends. As this ruling did not reflect the UK's existing Working Time Regulations (which effectively require employees to use their leave within the current holiday year or lose it) the case was passed to the House of Lords to decide whether the decision by the ECJ applied in the UK.

The House of Lords has now ruled that workers who are denied holiday pay while on sick leave can claim in an employment tribunal for unauthorised deductions from wages; effectively confirming that the ECJ ruling overrides the UK Working Time Regulations with a worst case scenario of claims for up to six years holiday pay.

Action to Take Now

• The House of Lords ruling applies to the statutory element of holiday entitlement not contractual leave in excess of this amount.
• Holiday accrual and payment of untaken holiday must potentially be incorporated into any dismissal payments involving employees on “long term” sick leave.
• You need to decide how to treat accrued annual leave for employees currently absent on sick leave where the absence has, or is likely to, run beyond the end of your holiday year.
• If the company has Permanent Health Insurance (PHI) provision, you should check with your provider what the ramifications of the “Stringer” case are, if you have not already been advised.

Future Action

• A full review of sickness and holiday provisions will be undertaken as part of the annual review of your employment documentation. We may suggest changes to your template Principal Statements and Employee Handbook if appropriate.
• If you currently provide more than the statutory (5.6 weeks) holiday entitlement or allow employees to carry over holidays, we will suggest amendments to clarify that annual leave over and above the statutory minimum will not accrue during sick leave.
• You should introduce/use long term absence management procedures to moderate the length of time employees are absent. Allowing absence to continue uncontrolled could see workers accruing substantial amounts of holiday entitlement or holiday pay.

Long Term Absence & Holiday Entitlement Frequently Asked Questions

Q: Is there a statutory definition of long term sickness?

Answer: No. The normal convention is that absence exceeding four weeks is considered long term.

Q: What happens if an employee returns from long term sickness within the current leave year?

Answer: They will be entitled to take the remainder of their holiday entitlement for that year as normal.

Q: What if someone goes off sick during their authorised holidays?

Answer: This is now a grey area. If you already convert holiday to sickness this would continue. If you don’t; wait to see how case law develops before conceding anything additional.

Q: We have always been told that it was “use it or lose it” when an employee was sick at the end of the leave year.

Answer: The “Stringer” case changes this and you can no longer rely on this arrangement.

Q: What happens if an employee’s sickness bridges two or more holiday years?

Answer: They potentially accrue statutory holiday entitlement/pay for each.

Q: Should I pay an employee outstanding holiday pay while they’re still off sick?

Answer: The House of Lords judgement effectively permits this; even though they’re not necessarily leaving your employment.

Q: I have an employee who has been sick for some considerable time, does this mean I have to give them holidays for all this time?

Ansewer: Potentially, yes. This judgement means that keeping people who are long term sick “on the books” is no longer cost neutral. You may need to introduce a more rigorous sickness management policy.

Q: Should I pay an employee statutory sick pay and holidays at the same time?

Answer: Yes, the judgement permits this. The holiday pay should be paid inclusive of any SSP entitlement.

Q: We offer company sick pay through an insurance based scheme; are we affected?

Answer: Yes. However, before you pay holidays to a sick employee check with your insurer as they may require you to deal with matters in a particular way.

Q: If we end up paying a full year’s salary through a company sick pay scheme, surely we don’t have to pay holidays as well?

Answer: Unfortunately, you do! This judgement potentially means you would pay both!

Q: In April, we were told that the holiday legislation meant we could no longer pay in lieu of the statutory holiday entitlement, except when someone left. Has this changed now?

Answer: No. Absurd though it may seem, legislation still requires you to give employees physical time off except when they leave. However, this legal judgement potentially undermines both the spirit and intent of that legislation.

Q: I have an employee who has been long term sick on several occasions over a number of years. What are the implications?

Answer: Theoretically, they may be able to claim for up to six years but please take urgent advice from us.

Q: We have no provision for “carry forward” of holidays in our terms and conditions. If an employee who was long term sick did not ask to take holidays in that year and it’s now a later leave year, do we have to pay them?

Answer: Another grey area! You may not have to pay but please take urgent advice from us.

Q: If we allow an employee to take outstanding holiday on their return from long term sickness, by when must it be taken?

Answer: You should insist that it is taken in the current leave year. It is ultimately up to the employee to ensure that they do.