A recent ECJ ruling means employees now have the right to accrue annual leave during long-term sickness absence. Howard Lewis-Nunn explains what financial ramifications this will have on employers, especially in the current economic climate.

The question of whether workers have a right to accrue annual leave during long-term sickness absence has finally made it to the European Court of Justice (ECJ). In a ruling in response to combined references for the UK (Stringer & Others v HMRC) and Germany (Schultz-Hoff v Deutsche Rentenversicherung Bund) the ECJ has cleared up some of the confusion.

The European Union’s Working Time Directive provides each worker with the right to four weeks’ paid annual leave. This right is implemented into UK law via the Working Time Regulations.

The ECJ has now given its full decision on the question of holidays and sickness and made the following findings:

• A worker does not have to perform any work to accrue annual leave. Therefore a worker’s annual leave will continue to accrue during a long-term period of sickness absence even if this means they are on sick leave for the full holiday year.




• Workers on sick leave should be allowed to take paid annual leave at some point. EU governments do not have to permit workers to take holiday whilst they are on sick leave. But if they do not allow this, workers must be allowed to take any accrued holiday after they have returned to work, even if this would be after the end of the particular leave year in which it was accrued.




• Workers must be paid in lieu of any annual leave accrued but untaken on the termination of their employment regardless of how long they have been off sick. This payment should be calculated on their normal rate of pay.

The right to annual leave and the other measures on working time in the EU’s Directive were introduced as health and safety measures to provide workers with a minimum period of rest from work each year. It is difficult to see how providing more rest for workers who have been off sick for a long time can be justified.

Further legislation

As this is an ECJ ruling on an EU Directive rather than the UK’s regulations it will not have an immediate impact on the private sector. The House of Lords will first have to decide how to interpret the UK’s Working Time Regulations in the light of the ECJ’s decision. If, as seems likely, their Lordships decide that the regulations are incompatible with the EU Directive, the government will have to introduce further legislation to amend the regulations. This is likely to take some time so private sector employers have some time to prepare.

Any changes are ultimately going to lead to an increase in costs for employers and it would be wise to start planning now. The most obvious change will be to allow staff who have been on long-term sick leave to accrue and if necessary carry over holiday. The cost of paying out for accrued annual leave will also have to be factored into dismissals on the grounds of ill health.

Employers should also check their permanent health insurance policies, especially those that pay out while the individual remains employed, as such policies are unlikely to cover the cost of accruing annual leave.

As for the public sector employers, this ruling will have an immediate effect on them and so they must now allow workers to carry over any unused holiday from one leave year to the next if their sick leave has prevented them from taking it. No discount should be given on any payments in lieu of annual leave in respect of any period of sick leave. Ultimately private sector employers will have to follow suit once the House of Lords has issued its ruling.

As mentioned at the beginning of this article, the right under the EU Directive is to four weeks’ annual leave. However, following a deal being struck with the unions, the UK government amended the regulations to provide workers with the right to 4.8 weeks’ annual leave (rising to 5.6 weeks from April 2009). As the ECJ only looks at the interpretation of the EU law, its decision only applies to the right to four weeks’ paid annual leave required under the Directive. It does not apply to the additional 1.6 weeks’ leave in excess of the EU right that the UK government has provided for, nor will it apply to more generous contractual holiday provisions.

Employers can seek to minimise the cost impact of this ruling by ensuring their provisions for annual leave limit the accrual of holiday during sick leave to the minimum four weeks under the EU Directive only. This additional cost also underlines the importance of managing sickness absences pro-actively.

Howard Lewis-Nunn is a barrister (non-practising) at Howard Kennedy