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Employment law reforms continue apace: but no sign of any measures dealing with holiday and sickness absence

Kate Hodgkiss, a Partner in our Edinburgh office, comments:

As the holiday season gets well underway, employers may well be wondering when they will finally have a clear understanding of their workers’ holiday entitlements; after all, it is quite some time since Stringer made its mark in 2009 and left the whole question of the impact of sickness absence on holiday entitlement well and truly up in the air.  The Government initially responded positively to this, launching a consultation in May 2011 with its proposals for sorting out the conflict between UK and European law over this perennial HR issue.  However, the consultation closed in August 2011, and despite almost daily announcements about other employment law reforms, we have yet to see anything which clears up one of the most important, and common, issues employers have to manage.

By way of reminder, the UK’s Working Time Regulations 1998 (WTR) adopt a ‘use it or lose it’ approach to holiday entitlement.  On the face of it, therefore, workers who have not used up their full statutory holiday entitlement by the end of a holiday year have no right to carry forward the unused holiday into the next holiday year.

In Stringer, however, the ECJ decided that if workers are unable to take their holiday during the holiday year because of sickness absence, they must be allowed to carry it forward into the next holiday year.  Shortly after Stringer, the ECJ gave another judgment in the case of Pereda. Here, the ECJ found that where a worker’s prearranged holiday coincides with a period of sick leave, the worker is entitled to take their holiday at an alternative time.   The ECJ then  gave judgment in the Schulte case finding that there is a limit to the length of time that a worker on long term sick leave can continue to carry over untaken statutory holiday (in this case 15 months).  Schulte was then followed by the ANGED case which confirmed that a worker who becomes unfit for work during a period of statutory holiday must be entitled to reschedule the leave and that a worker who becomes unfit for work before a period of holiday must be able to take the holiday at a later date.

None of these findings are reflected in the WTR and therefore we are left with a direct conflict between the provisions of the WTR and European case law.  In practice, this means that employment tribunals have had to interpret the WTR to give effect to the case law, and this has resulted in conflicting decisions.  Although the issue was finally considered at Court of Appeal level in the Larner case, some questions still remained unresolved,  leaving employers with ongoing uncertainty as to their obligations towards their workers.

The Government set out in its Modern Workplaces consultation its proposals for bringing UK law into line with the European case law. The proposals include amending the WTR to:

  • Allow a worker to carry over their holiday into the following leave year in circumstances where the worker has been unable to take their annual leave due to sickness absence, or falls sick during scheduled leave, and it is not possible to reschedule the leave in the current holiday year.
  • Allow an employer to insist that leave that is untaken due to sickness absence should be taken in the holiday year if there is still an opportunity to do so and, conversely, allow an employer to require unused leave to be carried forward to the following leave year if there are good business reasons.
  • Limit the entitlement to carry leave forward to the four week leave entitlement provided for by the Working Time Directive (WTD) (so that an employer will not have to permit a worker to carry over the extra 1.6 weeks provided for in the WTR)
  • Require a payment in lieu of untaken holiday on termination of employment to include payment in respect of any untaken carried over leave.
  • Limit the ability to reschedule leave within the leave year where a worker has been sick whilst on scheduled annual leave to the four weeks’ leave provided for by the WTD.
  • Specify the order in which leave will be deemed to be taken, with the leave provided for by the WTD being taken first.

These proposals will bring some welcome clarity to this troubled area and assist employers to understand, and potentially limit, their obligations to their workers.  Employers will be able to review their contracts and procedures and take appropriate steps to ensure they are legally compliant.

It is about time that Stringer’s loose ends were neatly tied together – it is to be hoped that amongst the many reforms on the Government’s agenda, this one finally rises to the top and that the next announcement will be the one employers are really waiting for – an end to their holiday/sickness absence headache.

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