The ECJ in Pereda v Madrid Movilidad SA has held that if a worker becomes sick during a period of annual leave, they are entitled to delay their holiday and carry their annual leave forward. What does this mean for employers in terms of managing their employees and ensuring this right isn’t abused?

The facts and the ECJ ruling

Pereda worked for Madrid Movilidad (MM) removing wrongly parked cars from public highways. Pereda booked annual leave from 16 July to 14 August 2007 but was unable to work from 3 July to 14 August due to an injury, which entirely overlapped with his annual leave. Pereda asked his employer to refund his annual leave as he was injured, and therefore on sick leave over that period: however, his request was refused without reason. Pereda brought a claim under Article 7 of the Working Time Directive (No.2003/88) (WTD) which governs the right to receive pay for annual leave. The Spanish Court asked the ECJ to consider whether the WTD allows a worker in these circumstances to use his annual leave on different dates than originally booked, regardless of whether the leave year has ended.

The ECJ considered the purpose of both annual and sick leave. Paid annual leave is a right granted under the WTD which cannot be derogated from. During this period the worker is entitled to rest and enjoy a period of relaxation and leisure. Sick leave, however, is a period during which a worker is entitled to rest and recover from an illness or injury. It naturally follows that the individual will not be able to enjoy the relaxation and leisure a holiday would allow. The ECJ ruled that if a worker decides not to take annual leave during a period of illness, his employer must grant him a replacement allocation of holiday to ensure he still receives their entitlement of rest, relaxation and leisure.

What does this mean for employers?

So where does this leave employers and their ability to manage annual leave and sickness absence? If a worker becomes ill or injured while still at work, prior to a pre-arranged period of annual leave, the situation is clear-cut: the employee must be allowed to take their annual leave at another date and take the period as sick leave instead. This situation should be fairly straightforward for an employer to deal with. The usual sickness policies and procedures will kick in and, provided the worker complies with the policy and the employer is satisfied they are unwell and entitled to sickness absence, the employer simply needs to ensure the annual leave is credited back to the employee’s entitlement.  

The only sticking point may be if the employee is unable to take that leave during the current leave year. Pereda and other recent decisions on sick leave, such as Stringer and ors v HMRC may well require the employer to allow the worker to carry the entitlement forward to the subsequent leave year.

The more complex and perhaps worrying situation for employers is what happens when an employee is already on annual leave and falls ill? Does the employee have the right to claim back their annual leave when they return to work? The short answer is yes, probably. Although this situation wasn’t specifically addressed by the Pereda decision, it would be at odds with the ECJ ruling not to take a similar approach and an employer could be at risk of a WTD claim for refusing such a request.

Preventing abuse

Following this ECJ ruling, employers may be worried that they will face increased costs as employees abuse their new-found right. This may well be a justified concern. The Chartered Institute of Personnel and Development (CIPD) 2008 annual survey report on absence states that on average sickness absence costs employers £666 per employee per annum.

In order to prevent employees abusing the right to postpone holiday in lieu of sick leave, employers should review their sickness and annual leave policies to take the ‘Pereda rights’ into account. Unless or until the Courts rule otherwise, there is no reason why employers should not ask that a worker provide evidence of their inability to work.

Employers should consider making their policies very clear in this respect and perhaps requiring that if an employee becomes ill or is injured whilst on holiday, that they notify their employer as soon as possible, in accordance with the usual sickness policy, and provide medical evidence as soon as practicable. Unlike normal periods of sickness, where medical evidence is not usually requested for the first three days, employers may wish to require that workers supply medical evidence for their entire period of incapacity if they wish to claim a refund of their holiday allowance.

Many employers will remain uneasy in the wake of Pereda. What if an employee becomes ill or injured as a result of their holiday? Why should the employer bear the brunt? Unfortunately for employers the cause of an employee’s illness or injury doesn’t matter: if an employee injures themselves on a drunken night out at the weekend for example, this won’t entitle the employer to refuse sick leave or statutory sick pay.

While many are wary of the impact the Pereda ruling will have on employers, if clear policies are put in place to manage the situation the potential negative impact should be minimal.  

Pam Loch and Chloe Pereira practice at boutique employment law firm, Loch Associates.