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EAT ruling on carry over of holiday pay gives employers greater certainty
The relationship between workers’ rights, their holiday and how those rights are affected by sickness absence has been a much debated subject in recent years. A particular issue has been to what extent a worker on long-term sick leave, who has been unable to take holiday due to sickness, is entitled to carry forward accrued but untaken holiday to a subsequent leave year.
Sood Enterprises Ltd v Healy adds more clarity for employers regarding this issue. In Sood the EAT held that the holiday that a sick worker can carry over is a maximum of 4 weeks (20 days) per holiday year and that unless there is a relevant agreement in place, employers are not compelled to carry over any further contractual leave.
The European Working Time Directive (the Directive) governs this area of law and was implemented in the UK by way of the Working Time Regulations 1998 (WTR).
Workers in the UK are entitled to 28 days annual leave in each leave year. This is comprised of:
- 20 days ‘ordinary’ annual leave (regulation 13, WTR), a right guaranteed by the Directive.
- 8 days ‘additional’ annual leave (regulation 13A, WTR), a right under domestic legislation only.
Prior to Sood ordinary annual leave could be carried over to the following leave year when a worker is on long - term sick leave, but the question remained whether the ‘additional’ 8 days could carry over.
The claimant, Mr Healy had worked for Sood Enterprises as a handyman and carwash worker for several years and was entitled to 28 days’ statutory annual leave. In July 2010 he suffered a stroke and was absent from work until he resigned in June 2011. He had taken 11 days’ holiday out of his 28-day entitlement in 2010 (leaving him with 17 days’ leave), and had accrued 14 days’ holiday in 2011 when his employment ended. He received no payment in lieu of accrued holiday on termination of his employment and brought unpaid holiday claims.
The employment tribunal relied on the EAT decision in NHS Leeds v Larner, in which the EAT found that a worker who was signed off sick for the whole of the leave year was presumed not to have been well enough to exercise what the ECJ has described as the “right to enjoy a period of relaxation and leisure” and was therefore entitled to carry over the full holiday entitlement to the next leave year.
The employment tribunal found Mr Healy was entitled to be paid in lieu of holiday accrued under both regulation 13 and 13A for both the 2010 and 2011 leave years and ordered the Respondent to pay him in lieu of a total of 31 days’ holiday made up of 17 days’ holiday accrued but not taken owning to long-term sickness in 2010, and 14 days’ holiday accrued but not taken for the same reason in 2011 to date of termination.
The EAT upheld the decision regarding the 2011 leave year. However it rejected the Tribunal’s approach regarding the 2010 year, finding that regulation 13A, did not allow for the carrying over or payment in lieu of the additional 8 days’ entitlement, only the 20 days of ordinary statutory leave. On that basis the EAT reduced the award for 2010 to a payment of £725.90 to £384.30
The EAT also clarified that the Directive was enforceable against private employers. Relying on the Court of Appeal decision in Larner where it explained that there is a direct effect against emanations of the state, and that domestic law should be interpreted if possible to be compatible with the Directive. Therefore, the WTR has to be read as to be compatible with the Directive even where the litigants are private individuals or companies.
What does this mean for employers?
This decision is good news for employers as, provided there are appropriate clauses within the employment contract, a worker on long term sick leave will only be able to carry forward the maximum 20 days in respect of any given year and not the full 28 days as previously feared.
The Coalition has indicated that when the WTR are amended in line with recent ECJ decisions on holiday and sickness, its intention is to limit the carry over of holiday to the 20 days minimum amount and not the additional 8 days. The Sood judgment should go some way to push government in the right direction.