Long-term sickness absence: no accrual of holiday pay

Sarah-Marie Williams of Clyde & Co begins a series of articles on long-term sickness absence with a look at the recent change to the law regarding long-term sickness absence and statutory holiday pay.

Background

As readers may be aware there has been a great deal of confusion surrounding whether or not employees on long-term sickness absence are entitled to paid holiday.

This began in 2002 when the Employment Appeal Tribunal (EAT) decided that employees on long-term sickness absence continue to accrue their statutory holiday entitlement under the Working Time Regulations 1998. Kigass Aero Components Ltd v Brown [2002] IRLR 312 EAT concerned an employee who had been on sickness absence for a period of 10 months. Although his entitlement to both contractual sick pay and statutory sick pay had expired the EAT decided that, pursuant to the Working Time Regulations 1998, he was entitled to receive holiday pay as his employment had subsisted. It decided this on the basis that, although regulation 13 expressly state that workers are entitled to receive paid leave, there is nothing in the Regulations stating that in order to be a worker an individual must have done some work or attended to do work.

In the subsequent case of List Design Group Ltd v Douglas and others [2003] IRLR 14 EAT the EAT held that the right to receive a payment in lieu of annual leave can be claimed as wages under the Employment Rights Act 1996, section 13. This meant that an employee could claim unpaid holiday payments from previous years if he or she established that the most recent failure to pay was the last in a series of deductions.

However, indications that the legal position might change began following the EAT's decision in Commissioners of Inland Revenue v Ainsworth and others EAT/745/03 where, although the EAT followed the principles in Kigass, it granted the employer leave to appeal to the Court of Appeal.

Court of Appeal ruling

On 22 April 2005, the Court of Appeal overturned the EAT's decision in Ainsworth and in doing so overturned the decision in Kigass. The Court of Appeal held that the EAT had been wrong to find that the right to four weeks' statutory paid holiday continues to accrue whilst an employee is off on long-term sick leave and has exhausted his or her entitlement to sick pay. It criticised the EAT's reliance on the interpretation of the word 'worker' in the Working Time Regulations 1998 and decided that it was preferable to look at the meaning of the word 'leave'. The Court of Appeal stated that in order to take holiday there must be some work that the worker is actually taking leave from. Furthermore, it was noted that the Working Time Regulations 1998 were made in the context of health and safety. An employee who is not at work stands to gain no benefit to his or her health by receiving a payment of money in relation to a notional period of holiday. The only benefit is financial.

The Court of Appeal also overturned the EAT's decision in List Design Group. It decided that on termination of employment a claimant can bring a claim under the Working Time Regulations 1998, regulation 30 only and that this is in respect of only the one, relevant holiday year. A claimant cannot bring a claim under the Employment Rights Act 1996 for a series of deductions or non-payments relating to a number of holiday years.

Effect of the ruling

The effect of the Court of Appeal's is that we now have a definitive ruling that employers are no longer required to pay four weeks' statutory holiday entitlement to workers who are on long-term sick leave and have exhausted their sick pay entitlement. This will be welcomed by employers, many of which have been faced with potential unfair dismissal, disability discrimination and breach of contract claims (the latter in cases where the individual might otherwise have received benefits under a permanent health insurance scheme) for taking the decision to dismiss workers on long-term sickness absence rather than pay them four weeks' holiday per year.

Outstanding issues

It should be noted, however, that this case dealt only with circumstances where a claim for holiday pay is made either during the sick pay period or where employment is terminated on the grounds of ill health. This begs the question as to what happens when a worker is off on long-term sick leave but returns to work during the holiday year. Is the full four-week entitlement available to him or her for the balance of the holiday year?

It would seem that the Court of Appeal's decision raises two possible approaches that could potentially change the way in which employers deal with holiday entitlement in respect of workers returning from long-term sick leave during the holiday year: the first being that preservation of full statutory holiday entitlement may be dependent on whether the worker is still in receipt of sick pay entitlement on his or her return to work, and the second being that time off on sick leave cannot co-exist with an accrual of statutory holiday entitlement so a pro rata reduction of holiday entitlement could be applied.

Despite this, the Court of Appeal did not specifically address this issue. As a result the case cannot be relied on to reduce a worker's four weeks' statutory holiday entitlement following a return from long-term sick leave during the holiday year. However, the Court of Appeal has acknowledged that a legislative amendment may be required. Pending clarification, employers would therefore be advised to adopt the prudent approach of continuing to provide workers returning from long-term sick leave during the holiday year with their full four weeks' entitlement.

Next week's article will consist of tips on dealing with long-term sickness absence.

Sarah-Marie Williams is a solicitor at Clyde & Co (sarah-marie.williams@clydeco.com)

Further information on Clyde & Co can be accessed at www.clydeco.com