HM Revenue and Customs v Stringer and Others
[2009] IRLR 677, HL

Following guidance from the ECJ the HL eventually decided that workers absent from work on long term sickness absence since the start of the leave year, who had exhausted both their contractual and statutory sick pay, did accrue statutory holiday and should be allowed to take that holiday. The HL also ruled that claims in relation to statutory holiday pay can be brought as a claim for unlawful deductions from wages under the Employment Rights Act 1996 (ERA). Annoyingly some other issues did not form part of the HL decision such as:

  • As the Working Time Regulations do not provide for holiday to be carried over if a worker on sick leave is refused holiday, can that holiday entitlement be carried over and be taken in a subsequent holiday year?
  • Can such a worker only be paid in lieu of the holiday on termination?

As some issues remain unresolved, we attempt to set out below practical steps employers can take, bearing in mind that the law is still grey in some areas. In Stringer the ECJ gave some guidance saying that under the Directive:

  • Workers on sick leave can accrue the four weeks’ paid holiday while they are on long-term sick leave (This does not apply to all of the 28 days applicable under the UK legislation).
  • Workers must be allowed to take this accrued holiday on their return to work.
  • Any national rule which prevents workers actually taking paid leave during sick leave is permissible, as long as the worker then has the right to take their leave at another time (that is when they return). Similarly a national rule which allows workers to take paid annual leave during sick leave is also allowed.
  • It is not lawful to provide that the right to annual leave is lost at the end of a leave year where the worker has been on sick leave.
  • Where the employment relationship is terminated, workers are entitled to take the leave or to any pay in lieu of the holiday which was not taken due to illness. This is the case even where the worker was on sick leave for all or part of the leave year in question.
  • Accrued statutory holiday not taken due to sickness can be taken at a later date – even if it is during the next leave year.

Implications for employers:

  • Employers must provide all workers including those on long term sick leave with at least the four weeks EU annual leave in the usual way. (Of course in the UK leave entitlement is more than four weeks, that is 28 days, but the Stringer decision does not apply to this holiday just the four week part of it).
  • Under the UK's current Working Time Regulations (WTR) employers can apparently insist that leave must be taken in the year in which it is due; although this seems inconsistent with the ECJ's judgement in Stringer and so new legislation may be needed.
  • Workers may have a right to carry leave over into the next year if there is a contractual right to do so, or if or the employer has refused permission for the employee to take the leave.
  • On termination, but probably not during employment, workers have the right to be paid in respect of accrued but untaken holiday entitlement.
  • Employers may incur increased costs in relation to workers who return (or leave) following long-term sick leave.
  • Employers should check private health insurance schemes and may be better off not providing these and dismissing the long-term sick earlier rather than later.
  • Workers who are absent for years on permanent health insurance could accumulate a considerable right to annual leave (and pay in lieu). It is not certain if that would be payable by the insurer, but insurers may attempt to deny cover.
  • At the very least, employers should focus on managing sickness absence to ensure the employees return to work as soon as possible.
  • If the employment relationship ends, workers are entitled to a payment in lieu in respect of untaken leave due to sickness (even if the worker is absent for all or part of the leave year in question).
  • In the UK it appears that accrued statutory holiday not taken due to sickness does not have to be carried over and taken during the next leave year if the worker returns to work in the next leave year. However as this is unlikely to affect many employees and the ECJ have expressed the view that they should be allowed to take it, employers may wish to consider allowing those who are affected to carry the leave over.
  • Employers should always remain wary of denying holiday pay to workers who have been absent for part of the year.
  • As the EU cases refer to the four weeks holiday under the Directive, employers must decide how to deal with the additional holiday conferred by the UK WTR (and/or any contractual holiday). This must be dealt with in sickness, or absence policies.
  • The ECJ judgment does not entitle workers to accrue the additional holiday during sickness absence, although employers may wish to allow this. If they do not, disability discrimination issues may arise and treating the extra holiday entitlement differently may be difficult for personnel departments to administer. Alternatively employers may limit any holiday which accrues during sick leave to a maximum of four weeks holiday as long as the relevant policy says so.
  • Employers must review current holiday policies to decide how they wish to deal with untaken holiday at the end of the leave year, at least as far as those on sick leave are concerned.
  • The cases do not deal directly with other areas of the law and it is unlikely to further affect other common long term absences such as ordinary and additional maternity leave. It is already well established that employees accrue annual leave during the whole maternity leave so employers usually allow the statutory annual leave to be taken at the end of maternity leave or to make a payment in lieu.
  • Perhaps subsequent cases may address similar issues concerning paid holiday during, for example, a long term sabbatical. A carefuk employer may require workers to take their annual leave during a sabbatical.
  • As the law is now going through a process of change employers must be very careful with employees who are on long-term sick leave as they are also likely to be protected by the Disability Discrimination Act 1995.
  • Any unpaid pay in lieu of annual leave can be a 'deduction from wages' and it is therefore possible for workers to claim in respect of a series of deductions for up to six years.

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