Limit to holiday carried over following sick leave

Good news for employers in a decision which limits the amount of holiday which can be carried over for employees on long-term sick leave.

How far back can a worker claim holiday entitlement if he or she has been on long term sick leave? Employers will be pleased with a recent Employment Appeal Tribunal (EAT) decision which limits the amount of holiday that can be carried over from previous holiday years for such workers.

Until now, there has been no clear limit in the UK, despite the fact that the Working Time Regulations 1998 (WTR) say that holiday must be taken in the year it accrues. Case law from the European Court of Justice (ECJ) has established that workers do not lose holiday if they have been unwilling or unable to take it whilst on sick leave, and the WTR must be interpreted in line with the Working Time Directive and ECJ case law. For some employers this resulted in employees claiming that they were still entitled to untaken paid holiday (or, if their employment had ended, payment in lieu of holiday) stretching back over several years.

European case law has long suggested that such holiday cannot be carried over from previous holiday years indefinitely and could be subject to a limit of 18 months after the end of the leave year in which it accrues. But uncertainty remained in the UK, because there is no national legislation specifically imposing such a limit. Views were divided on whether employers could impose their own limit under a clause in the contract. The EAT has now ruled that such holiday cannot be carried over more than 18 months after the end of a leave year.

Mr Plumb was a printer who suffered an accident in April 2010, and was absent on sick leave from that date until his employment was brought to an end in February 2014. He asked to take holiday for the years 2010, 2011, 2012, and 2013 whilst on sick leave in August 2013. His employer allowed him to take and be paid for holiday relating to 2013, but refused to allow him to take holiday relating to 2010, 2011 and 2012. When Mr Plumb’s employment ended, he issued a claim for payment in lieu of his full holiday entitlement for 2010, 2011 and 2012. The Employment Tribunal rejected his claim and Mr Plumb appealed.

Mr Plumb argued that according to ECJ case law, he should be able to carry over holiday from previous years if he was unable or unwilling to take holiday during sick leave. He also argued that there was nothing in his contract or in UK law limiting how long it could be carried over for.

The EAT accepted that Mr Plumb was entitled to some pay in lieu of holiday: because of his sickness absence he was entitled to carry holiday over under ECJ case law. But the EAT ruled that in fact UK law does already impose a limit on carryover by means of the WTR’s ‘use it or lose it’ principle that holiday must be taken within the holiday year. To make this compliant with EU law, the UK courts had already ruled that carryover must be allowed where a worker is unable or unwilling to take holiday due to sickness absence. However here the EAT ‘read’ additional words into the WTR to the effect that carryover is limited to 18 months after the end of the leave year in which the holiday accrued. 18 months was consistent with the periods allowed in the ECJ cases.

This decision will make a significant difference for employers if individuals have been off sick for several holiday years and, at the end of their employment, claim backdated holiday pay. Following this decision, employers can now be confident that:

• Where employment has ended, the worker is only entitled to a payment in lieu for untaken holiday carried forward up to 18 months after the end of the relevant holiday year. If the holiday accrued in a holiday year which ended more than 18 months previously, there will be no entitlement to pay;
• Where employment continues, the worker is only entitled to take paid holiday which has been carried forward up to 18 months after the end of the relevant holiday year – it cannot go back to prior holiday years;

Depending on the contract, the employer may also only need to apply this to the minimum 4 weeks’ holiday enshrined in EU law, not the UK’s additional 1.6 weeks. Employers should check their contracts to ensure there is a general limit on carryover which will apply to any additional holiday entitlement.

Employers will need to bear in mind that, subject to the WTR rules on postponing holiday, they will not be able to prevent an individual who is still employed from taking holiday whilst on sick leave. As a result of this decision, well-informed employees who have run out of entitlement to sick pay may ask to take holiday from a previous holiday year to ensure that they do not ultimately lose it.

The parties have been given permission to appeal to the Court of Appeal, so this may not be the end of the matter.

Finally, employers should remember that although Regulations now prevent an ET from considering unlawful deductions which took place two years before the claim was issued (if issued on or after 1 July 2015), the Regulations are unlikely to help an employer in this situation. This is because payment cannot be made in lieu of holiday unless the employment has been terminated. Therefore, the ‘deduction’ (non-payment of holiday pay) in this scenario would be likely to take place when employment has ended and not any earlier.