Case law update: Keep calm and carry over

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In the case of NHS Leeds v Larner, the Court of Appeal has ruled that employers should allow the carry over of holiday that employees are unable to take during sick leave into the next holiday year, even if they do not make a carry over request

Background

Recent cases concerning the interaction of sickness and statutory holiday (under the Working Time Directive (WTD) and the Working Time Regulations (WTR)) have found that workers continue to accrue holiday during sick leave and that they can carry forward holiday to the next leave year if they are unable to take it during the current one due to sickness. On termination of employment, workers are then be entitled to payment in lieu of the carried over holiday.

There has been some uncertainty about whether holiday automatically rolls forward in these circumstances or whether the employee must make a request for holiday to be carried over. The Employment Appeal Tribunal case of Fraser v Southwest London St George’s Mental Health Trust (see our case law update) was helpful for employers in ruling that holiday would not roll forward unless the worker requested this. However, we have been awaiting further guidance on this issue from the Court of Appeal.

The facts

Mrs Larner went on paid sick leave from the NHS in January 2009 and had not returned to work before she was dismissed in April 2010. After her dismissal she claimed a payment in lieu of holiday untaken in the 2009/2010 leave year.

Mrs Larner had not requested holiday during 2009/2010 and nor had she asked to carry it forward. NHS Leeds claimed that this prevented her receiving a payment in lieu of this holiday on termination.

The ET and the EAT rejected NHS Leeds’ argument. They found that, having not had the opportunity to take holiday during the 2009/2010 holiday year due to sickness, Mrs Larner could carry over her entitlement to the following year without making a formal request. The right to pay in lieu of holiday on termination therefore included a payment in respect of that carried over holiday.

NHS Leeds appealed.

Court of appeal decision

The Court of Appeal rejected the appeal and found that Mrs Larner was entitled to a payment in lieu of the holiday accrued during the 2009/2010 leave year. It considered previous European Court of Justice (ECJ) decisions on holiday accrued during sick leave and found that none of them required a worker to make a request to take paid annual leave or to carry it forward to another leave period.

It was significant that Mrs Larner had not had the opportunity to take her holiday during the 2009/2010 holiday year or before she was dismissed. The Court found that the facts distinguished this case from the Fraser case, in which the employee had returned to work after a period of sickness and had had the “opportunity” to take her holiday in the year before her dismissal. (However, the Court only referred to the Fraser case in passing. It is in fact unclear whether, and to what extent, Fraser should be considered to have been wrongly decided.)

Comment

Up to now, and in the light of the previously conflicting case law, EEF has taken the view that our members would not usually pay accrued holiday on termination of employment for the previous leave year, unless the employee had expressly requested to carry over the leave. Larner now makes this approach much higher risk. We would therefore advise that, until we have any further guidance, members allow for carry over of accrued holiday if the employee has not had the opportunity to take holiday during long-term sick leave.

Allowing carry over of holiday in the above circumstances should still not mean that employees on long-term sickness absence accrue holiday indefinitely. The case of KHS AG v Schulte (see our case law update) ruled that there should be a limit on the period over which holiday could be carried over. In that case, a period of 15 months after the end of the holiday year was found to be lawful. We would still therefore suggest that member companies do not allow carry forward for longer than this period.

The WTR currently preclude the carry over of statutory holiday, which certain employers seek to rely on to prevent workers carrying over holiday accrued during sickness absence. However, the Government is proposing to amend the WTR to allow for the carry over of holiday accrued during sickness absence. In the meantime, we have always held the view that UK tribunals and courts are likely to interpret the WTR to give effect to the principles of the WTD (which allows for carry over) and the ECJ case law arising from it. Larner has confirmed that this is the correct approach. Whilst the principles of the WTD were in this case directly effective against NHS Leeds as a public sector employer, the Court found that it would if necessary have been possible to interpret the WTR to comply with these principles.

For more information on holidays and sickness absence generally, see our Miniguide on Holidays and sickness absence. It has been updated to reflect this latest decision from the Court of Appeal.

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