Workers’ entitlement to holiday pay whilst off sick continues to prove problematic for businesses. In a decision just issued by the Court of Appeal, NHS Leeds v Janet Larner, the Court has confirmed that workers are entitled to annual leave which accrues while they are off sick, even where they have not made any request to take leave or carry the leave forward to the next holiday year.


This isn’t the first case to confirm that holidays continue to accrue during periods of sickness absence of course. That was first decided by the European Court of Justice in Stringer & ors v HMRC in 2009 – and that’s how the Working Time Regulations (WTR) have been interpreted since then.


Claims for holiday pay can go back years, to the introduction of the WTR in 1998, so employers might find themselves facing claims for substantial back payment of accrued holidays for sick workers. There are workers out there who have been off sick for a number of years – these could include workers who are in receipt of Permanent Health Insurance Benefits, covering them for earnings lost while they are off.  And, while I am not for a moment suggesting that absence is not caused by genuine illness, it is somewhat counter-intuitive that workers who are already off work should be able to take leave, or that they should be able to save up the holidays and be paid in lieu of the holidays accrued on termination of employment.


There have been a number of conflicting cases since Stringer, and there was some scope for employers to challenge entitlement to carry forward holidays (or holiday pay in lieu on termination of employment) if the worker hadn’t requested the holidays.  For example, in the case of Fraser v Southwest London St Georges Mental Health Trust, the Employment Appeals Tribunal confirmed that a worker had to give notice of her intention to take holidays during a period of sick leave in order to be entitled to take the leave, carry it forward, or be paid in lieu of holidays on termination. Mrs Fraser’s entitlement to holiday pay was dependent on her giving her employer notice of her intention to take annual leave and she had failed to do this.

The Larner case has now categorically removed that opportunity for employers. Mrs Larner, a clerical worker with NHS Leeds, claimed for payment of annual leave for the leave year 2009/10.  She had been off sick, and was prevented from taking her leave during that year because she was absent. The Court of Appeal decided that she was entitled to carry her untaken paid annual leave forward to the next leave year in 2010/11 without making a prior request to do so. As her employment was terminated in that year, before she could take the carried forward leave, she was entitled to payment on termination for the paid annual leave she had been prevented from taking.


Let’s not give up hope – there are steps employers can take to minimize risk and cost in this situation. For instance, they could contractually limit the carry-over period for leave to something in the region of 15 months. The European Court has confirmed that this is acceptable. They can limit carry-over to the 4 weeks annual leave granted under the Working Time Directive, as opposed to the 5.6 weeks available under the WTR. And they might be able to "break the chain" of a series of deductions (unpaid holiday pay), by paying in respect of the last holiday year. However, there are a whole range of cases which need to be considered, and it’s worth looking at these issues carefully.


Finally, the Government’s answer to all of these issues is expected in their response to the Modern Workplaces Consultation.  This was due in the Spring.  We can hope that clarity is provided at last – it’s long overdue.


Sue Gilchrist, Senior Associate at Pinsent Masons