Employment Update: Annual leave and sick leave – ECJ guidance

Amidst all the new developments in employment law, there is one topic which keeps cropping up in the courts – the overlap between annual leave and sick leave. Two recent decisions from the European Court of Justice (ECJ) provide further guidance on this topic.

Rescheduling annual leave

The ECJ has confirmed that a worker who becomes sick during a period of paid annual leave is entitled to take the paid annual leave at a later date, irrespective of whether the sickness arose before or during the annual leave.

In Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Federación de Asociaciones Sindicales and others, the Spanish Tribunal Supremo made a reference to the ECJ asking whether, under the Working Time Directive (the Directive), a worker can interrupt a period of paid annual leave if he or she is temporarily incapacitated so that the full, or remaining, period, can be taken at a later date.

The ECJ noted that the right to paid annual leave is an important principle of EU social law, from which there can be no derogation. The right is expressly laid down in the Charter of Fundamental Rights of the European Union and cannot be interpreted restrictively. The ECJ had also confirmed in the Pereda case that the purpose of entitlement to paid annual leave is to enable workers to rest and to enjoy a period of relaxation and leisure, whereas the purpose of entitlement to sick leave is to enable workers to recover from an illness that has caused them to be unfit for work.

In Pereda, the ECJ held that a worker who is on sick leave during a period of previously scheduled annual leave has the right, at his request and in order that he may actually use his annual leave, to take that leave during a period which does not coincide with the period of sick leave. The ECJ in this case confirmed that the point at which the temporary incapacity arose is irrelevant. A worker is entitled to take paid annual leave which coincides with a period of period of sick leave at a later point in time, irrespective of the point at which the incapacity for work arose. It would be arbitrary and contrary to the purpose of entitlement to paid annual leave to grant the worker that right only if he is already unfit for work when the period of paid annual leave commences.  As stated in Pereda, the new period of annual leave may be scheduled, if necessary, outside the reference period for annual leave.

Payment in lieu on termination and carry over

The ECJ has confirmed that where a national law entitles workers to annual leave which is greater than the minimum entitlement of four weeks under the Directive, it is for member states to decide whether to provide workers who have been unable to use the additional entitlement due to sickness with a payment in lieu on termination.

In Neidel v Stadt Frankfurt am Main, the Frankfurt Administrative Court referred a series of questions to the ECJ based on the interpretation of Article 7 of the Directive. Article 7 provides that workers are entitled to at least four weeks' paid annual leave and that the minimum period of paid leave many not be replaced by an allowance in lieu, except on termination.

The ECJ confirmed that the Directive does not preclude a national law which entitles workers to more than four weeks' paid annual leave. The Directive simply lays down minimum health and safety requirements for the organisation of working time and does not affect the right of member states to provide more favourable protection for workers. It is therefore for member states to decide whether to provide workers with an entitlement to paid leave in addition to the minimum paid annual leave entitlement of four weeks and whether to provide workers with an entitlement to an allowance in lieu on termination if workers have been unable to use that additional entitlement due to sickness.

This decision distinguishes between the minimum leave entitlement under the Directive and more generous rights provided by member states. This appears to be in line with the UK Government's proposals to amend the Working Time Regulations 1998 (the Regulations) to clarify the circumstances in which untaken annual leave can be carried over by sick workers. Although the Regulations provide for 5.6 weeks' annual leave entitlement, the Government's proposals are restricted to the four weeks' leave entitlement under the Directive.

The ECJ also confirmed that Article 7 must be interpreted as precluding a national law which restricts a sick worker's carry-over period of statutory annual leave entitlement to nine months (which was shorter than the one year reference period which applied in this case). The ECJ stated that any carry-over period must take into account the specific circumstances of a worker who is unfit for work for several consecutive reference periods. The carry-over period must ensure that the worker can have, if need be, rest periods that may be staggered, planned in advance and available in the longer term and must be substantially longer than the reference period in respect of which it is granted.

The ECJ, however, did not indicate what constitutes an appropriate length of time for a carry-over period. In an earlier decision in KHS AG v Schulte, the ECJ confirmed that a carry-over period of 15 months was not contrary to the purpose of the right to paid annual leave, as it ensured that annual leave retained its positive effect as a rest period. It remains to be seen whether the ECJ will provide definitive guidance in relation to acceptable carry-over periods.

For further information or tailored advice please contact your usual Fieldfisher adviser or one of our Employment, pensions and incentives partners, Richard Kenyon.