Employees are entitled to accrue holiday pay while on sick leave and can carry that leave over into another year if they are too ill to take it.

The European Court of Justice (ECJ) delivered its opinion on 20 January 2009 in the conjoined cases of Stringer and Others v HMRC and Schultz-Hoff v Deutsche Rentenversicherung Bund on the effect of long term sick leave on a worker’s right to annual leave by virtue of the Working Time Directive.
The ECJ has held:

• A worker who is on sick-leave for the whole of an annual leave year is entitled to a period of four weeks’ paid annual leave, despite the fact they are not actually at work. The national courts can decide whether the paid leave can be taken during that year, or whether it should be carried over to another year, but either way the employee is entitled to be paid at some point.
• the right to paid annual leave is not extinguished at the end of a leave year if the worker was on sick leave for the whole of that year, or if he was absent on sick leave for part of the year and was still on sick-leave when his employment terminates.

Workers may also be able to claim for annual leave payments dating back more than 10 years, to when the Working Time Directive was first introduced, if their sickness absence had meant they were unable to take holiday, and hadn’t already claimed benefits from their employer.

A key point is that a worker on sick leave accrues annual leave despite not working. However, the court ruled, perhaps surprisingly, that it is for member states to decide whether a worker can take their annual leave during a period of sick leave. The House of Lords will therefore have to determine the position under the Working Time Regulations 1998 (WTR). The ECJ also ruled that, at the end of a leave year, a worker on sick leave who has been unable to take annual leave must be allowed to carry it over. The WTR expressly precludes any carry-over of annual leave. In addition, the right to be paid in lieu of accrued holiday on termination applies even if the worker has been on sick leave for the whole or part of the leave year.

This judgment is a victory for workers with significant cost implications for employers. It is likely to provoke dismay from business, especially in view of the prevailing state of the UK economy. Indeed, some employers may even consider making changes to contractual sick pay entitlements in order to offset some of the costs.

Practical Recommendations

Employers must ensure that they manage sickness absence effectively and efficiently. If absence is allowed to continue for very long periods, then any employee or worker on sick leave will continue to accrue annual leave.

Employers should consider reviewing contracts, policies and procedures to ensure that they are compliant with the decision in Stringer and that, in particular, any absence management policy is robust.