This has significant cost implications for employers who could be liable for unpaid holiday for previous years because claims under deduction from wages provisions can be made within 3 months of the last in a series of deductions rather than within 3 months of the initial breach.
Stringer concerns a number of conjoined cases which have looked at:
· whether annual leave accrues during sick leave and whether a worker was entitled to be paid, even if they had exhausted statutory and contractual sick pay (Kingass Aero Components v Brown [2002] ICR 697
· if claims for unpaid holiday could be brought under the Working Time Regulations and the Employment Rights Act 1996 (List Design v Douglas and others [2003] IRLR 14).
· whether workers who have been dismissed following long term sickness absence should be entitled to payments in lieu of untaken but accrued holiday (Commissioners of Inland Revenue v Ainsworth and others [2005] IRLR 465).
The House of Lords did not consider whether annual leave could be taken during sick leave. This was because the Respondent conceded this point following the ECJ decision in January 2009 that statutory annual leave accrues during sick leave and that it was for each member state to decide if an individual can take annual leave during a period of sick leave. This means that employment practitioners and employers will have to interpret and apply the ECJ decision within the scope of the Working Time Regulations pending further clarification on this point.
The ECJ gave employers the option of either allowing employees who have run out of sick pay to take annual leave in the year it accrues and, if they do not, the ECJ ruled that it can be carried over into the next annual leave year. The effect of this decision is that a worker could be entitled to double their statutory entitlement (up to 11.2 weeks) in one annual leave year (if they did not take the entirety of their statutory entitlement to holiday in the preceding holiday year).
A further problem with this decision is that the WTR expressly prohibits any carry over of statutory annual leave. The only way of interpreting the WTR in line with the ECJ decision would be to allow workers to take annual leave during sick leave. If this is the position, employers should review their contracts of employment and policies and procedures and ensure that no more than the statutory minimum annual leave (currently 5.6 weeks) accrues during sick leave and make provision for a payment in lieu on termination (ie not any additional contractual entitlement).
The position is also not clear as to whether annual leave will only be taken once statutory and contractual sick pay has been exhausted or if an employer can force a worker to use their annual leave rather than taking paid sick leave. A practical response would be to consider which would be more cost effective for the business. If an employer operates a generous contractual sick pay scheme it could be more economical for the worker to use up their sick pay entitlement before taking annual leave. However, this could pose difficulties in the long term if an employer waits until statutory and contractual sick pay has been exhausted, annual leave will have continued to accrue during this period, and depending on the generosity and length of the contractual scheme, it could mean that accrued annual leave has to be carried over, leaving the problem of double entitlement and the prohibition on carry over under the WTR. As the position is unclear there is likely to be further litigation on this point. Certainly, there are Regulations within the WTR which prescribe notice periods for compelling an employee to take holiday at specific times (and whereby these can be varied or contracted out of).
There is further uncertainty for employers who offer Permanent Health Insurance Schemes or generous company sickness benefits (often in the case of injury sustained at work). The ruling means that individuals in receipt of PHI are entitled to holiday pay on top of their PHI benefits. Following this decision, employers may be keen to dismiss employees on long term sick leave to avoid liability for annual leave payments but there is a risk that dismissal could breach the contract of employment if the receipt of PHI is dependant on the individual remaining employed. If so, employers could face liability for compensation equal to the payments the employee would have received under the PHI scheme until normal retirement age. Employers could also face a discrimination claim (for which compensation is uncapped) because individuals on long term sick are also more likely to be disabled for the purposes of the Disability Discrimination Act 1995. If so, they would be entitled not to be treated less favourably because of their disability and employers are obliged to make reasonable adjustments.
Neither the ECJ nor the House of Lords commented on the relevance of other payments (SSP, contractual sick pay, PHI) made to employees whilst they are on sick leave. Under the WTR, employers can offset any contractual payments made to staff regarding a period of leave against the statutory right to payment to ensure they are essentially not being paid twice. It is unclear if monies received during sick leave and under PHI schemes can be offset against payments for annual leave.
Although the decision can be viewed as a victory for workers, it could lead to employers being less generous in their contractual sick pay and provision of PHI.
For further details contact the Employment Team: