The question
An employee of ours has been on long-term sick leave since May 2011 until the current time. We have just confirmed her redundancy.
But she has now asked a holiday-related question about which I would like clarification.
She did not take any holidays last year (the holiday year is from January to December) and, therefore, has asked that the full entitlement of 25 days be paid to her (even though we are now in a new holiday year).
Our intention was just to pay her accrued holidays for this year, but I am uncertain as to what the current legislative stance is on this. Does she have a right to be paid for last year’s holidays that she didn’t take?
The legal verdict
Esther Smith, a partner at Thomas Eggar
As I am sure you know, the position on accrual and carry-over of holiday has changed many times over recent years as various cases have been heard and decided upon in the courts. To a certain extent, the debate continues and there is still some uncertainty on the issue of carry-over.
Given that this lady has been off sick for more or less a year, she would be entitled, under the European Working Time Directive, to carry over her untaken holiday from last year to this, if she were unable to take that holiday due to sickness.
However, it is limited, strictly speaking, to her statutory holiday entitlement, which is not necessarily the same as her contractual entitlement. European case law also indicates that the matter of carry-over is something to be addressed in the domestic implementation of the legislation.
Under our domestic implementation of the Directive, which is called the Working Time Regulations, there are mixed views over whether carry-over is allowable or not.
While we have no binding authorities (employment appeals tribunals or above), there have been various employment tribunal decisions in this area – the problem is that some go one way and some go the other.
So, if you want to take a risk-averse approach, my view would be to pay her on termination in lieu of this and last year’s holiday.
Esther Smith is a partner in Thomas Eggar‘s Employment Law Unit.
Adam Partington, a solicitor at Speechly Bircham
A worker’s right to paid holiday comes from two sources: our domestic legislation, which is underpinned by and derives from European law, and more favourable rights that a worker has been promised, often under their contract. It is necessary to consider both to determine what you need to pay your employee on termination.
Under our domestic law, workers in this country are entitled to a minimum of 28 days’ paid holiday a year (which can include bank holidays). Even though European legislation only provides for 20 days per year, in this response I do not differentiate between domestic and European legislation.
Case law suggests that it may be possible to treat the extra eight days differently, but you should explore this issue further if you wish to make that distinction.
There has been a glut of case law in this area, which unfortunately means there is a lack of clarity on a worker’s entitlement. Given the regularity of judicial decisions, these rights can change on regular basis.
As the law stands, it is clear that workers on sick leave continue to accrue their 28 days statutory holiday. This means, as you say, that you should pay in lieu of this holiday year’s entitlement.
Unfortunately, it is less clear whether your employee is entitled to be paid in lieu for the previous year’s untaken holiday. For example, if she did not request to take holiday in the previous holiday year, you may be able to argue that she has lost her entitlement to that previous year’s holiday.
However, there is uncertainty on this issue and the staff member could successfully argue that she is entitled to be paid in lieu of the previous year’s holiday. Therefore, you need to decide how much risk you want to take on and assess how the employee is likely to react when you make your decision.
Complexity and uncertainty
It is also important to consider what the employee’s contract says. The contract may provide more favourable rights to her, which means it will need to be taken into account.
It may be that you can distinguish between your staff member’s statutory holiday and the contractual holiday when paying in lieu. For example, the contract may state that, after a certain period of sick leave has elapsed, “contractual holiday” does not accrue (although “statutory holiday” would continue to do so).
The contract may also provide for the carry-over of holiday from one holiday year to the next, and if it did so, you would need to make sure this happens.
It may likewise provide for the fact that untaken “contractual holiday” is lost at the end of the relevant holiday year, in which case the employee would not be entitled to carry over this element of her holiday entitlement into the next holiday year.
Please note that given the complexity and uncertainty of the law in this area, this response is a preliminary guide only. Further considerations may apply to your particular circumstances.
For example, public sector employees can rely on some parts of European law directly, which may mean that they have more favourable rights than their private sector counterparts who can only rely on our domestic rules.
But your situation may also give rise to further issues. For example, if the employee is disabled within the meaning of the Equality Act 2010, or is in receipt of Permanent Health Insurance, you should take advice on whether these circumstances are relevant.
Adam Partington is a solicitor at Speechly Bircham LLP.
