Employment Update February 2009: holiday pay

19 February 2009

Employment Group

Holiday pay entitlement accrues while employee on sick leave

On 20 January 2009, the European Court of Justice gave its decision in the important case of Stringer v HMRC, which was taken together with a German case Schultz-Hoff v Deutsche Rentenversicherung as ECJ cases C-350/06 and C-520/06.

The cases concerned employees who were, or had been, on long-term sick leave.

One asked whether, while still on sick leave, she could take a number of days as paid annual leave. The others had been dismissed while on long-term sick leave and asked whether they could claim pay in lieu of untaken paid annual leave.

The court decided that there was nothing in European law to preclude a national law (such as exists in UK) to the effect that an employee cannot take annual paid leave (i.e. holiday) while on sick leave.

However, the court went on to say that an employee’s holiday pay entitlement under the Working Time Directive can accrue during a period of sick leave and be taken at the end of it.

Also, if the employee remains on sick leave beyond the end of the leave year and his/her employment contract is then terminated, the statutory entitlement is not simply extinguished at the end of the leave year on a 'use it or lose it' basis. In such circumstances the employee is still entitled to payment in lieu of leave not taken purely because they were on sick leave.

Points to note –

  • This ECJ decision is not consistent with the way that the Working Time Directive has has been interpreted in the UK to date. The Working Time Regulations may need to be amended to provide that annual leave need not only be taken in the leave year in  respect of which it is due, i.e. there can be no more ‘use it or lose it’.

  • There will be no changes to UK statute law until after the Stringer case has returned to the House of Lords and they have given their final judgment. However, it may be as well for employers to take on board the implications of the ECJ decision now. In the public sector it probably has direct effect in any event.

  • The ECJ decision only relates to the statutory 24 days annual leave (soon to be increased to 28 days on 1 April 2009) granted under the WTR. However, employers with more generous holiday plans may, for ease of administration, prefer to apply the same rules to all leave.

  • Employers will need to review their policies on holiday pay entitlement to ensure that they are up-to-date.