A recent judgment has shed some much needed light on how
employers must deal with payment in lieu of untaken holiday to
employees who have been on long term sick leave prior to the
termination of their employment. Peter Jones in the Employment Team
The Court of Appeal has decided that employers must pay
departing employees in full for up to 4 weeks per year accrued
untaken holiday pay if they have been on sick leave prior to the
termination of employment, if they have been unwilling or unable to
take the 4 weeks holiday during their sick leave. Previously
employers were able to argue that holiday must have been requested
for it to accrue on a 'use it or lose' basis, but this
is no longer the case.
The judgment in NHS Leeds v Larner means that the Working
Time Regulations are effectively amended by the Court, so that
annual leave may be carried over to a following year "...
where a worker [is] unable or unwilling to take [statutory holiday]
because [they were] on sick leave and as a consequence did not
exercise [their] right to annual leave." Where a worker is
entitled to annual leave "in respect of any previous
year"... "because of sick leave" when their
employment is terminated, they are entitled to be paid in lieu of
that "untaken leave".
The narrow issue in the NHS Leeds v Larner case was
whether Mrs Larner, who had been off sick for more than a whole
leave year, needed to have requested holiday in a previous leave
year to be entitled to claim a payment in lieu of untaken holiday
for the previous year. The Court's clear response was that
the request was not required. This interpretation relied on the
Court's view of European Working Time Directive and its
effect on an NHS employer (as a public authority) with reference to
the European minimum 4 weeks leave, but went further and stated
clearly that the judgment affects private employers as well.
What does this mean for employers?
While this judgment might provide employers with some
welcome certainty, it opens up the prospect of significant payments
to employees whose employment is terminated after long periods of
sickness absence. Ironically this might provoke employers into
acting more quickly and decisively in terminating employees on
longer term sick leave.
The changes also appear to indicate that employers are not entitled
to require employees to take periods of annual leave during their
sick leave, thereby neutralising the opportunity to solve the
problem before it arises. There is also European case law to
suggest that employers are entitled to limit their liability for
accrual of annual leave, but it is still uncertain what that limit
is. Finally, while the judgment deals with the 4 weeks statutory
minimum holiday under the European Working Time Directive, what
employers should do about the remaining UK statutory requirement of
1.6 weeks in the meantime is unclear.
The Government is proposing to amend the Working Time Regulations
in a manner consistent with the Larner judgment, but more
information about what the proposed carry over limit is likely to
be is now a pressing issue for employers seeking to resolve
difficult accrual issue.
For further information on this or any other employment law issue,
please contact Peter
Jones by emailing Peter or
by calling him on 08450 990045, or speak to your usual contact in
the Employment Team.
This document is provided for information purposes only and
does not constitute legal advice. Professional legal advice should
be obtained before taking or refraining from taking any action as a
result of the contents of this document.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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