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Employment Update: Holiday during sick leave – use it or lose it does not apply



United Kingdom

Employment Update: Holiday during sick leave – "use it or lose it" does not apply

Workers unable to take annual leave due to sickness are entitled to receive a payment in lieu of that untaken annual leave on termination of employment, whether or not they made a prior request to take, or carry over, that annual leave.

In this long-awaited decision in NHS Leeds v Larner, the Court of Appeal provides some helpful guidance on the case law in this area. However, the decision is unlikely to be welcomed by either employers or employees in the long run. For employers, paying long-term sick employees on termination for accrued annual leave, which may cover more than one leave year, may involve considerable costs. The costs implications may therefore give employers more incentive to dismiss long-term sick employees rather than allow sick leave to roll on and holiday to accrue unchecked.

The facts

Mrs Larner worked for NHS Leeds and was absent on sick leave for the whole of the annual leave year in 2009/10. During that leave year, she did not take paid annual leave and did not ask NHS Leeds to carry it forward to the next leave year. She was subsequently dismissed. NHS Leeds refused to pay her for the leave not taken by her in 2009/10.

Mrs Larner argued that, under Article 7 of the Working Time Directive (the Directive) and the Working Time Regulations 1998 (the Regulations), she had the right, without prior request, to carry over her untaken annual leave from 2009/10 to 2010/11 and to be paid on termination in lieu of that untaken leave. Both the Employment Tribunal and Employment Appeal Tribunal (EAT) upheld her claims. NHS Leeds appealed to the Court of Appeal, arguing that it was for Mrs Larner to make a request, either to take her paid annual leave during her sickness absence or to carry it forward. According to NHS Leeds, on the basis of the "use it or lose it" argument, Mrs Larner did not make the requisite request and her entitlement to paid annual leave for 2009/10 was lost. Her right to payment in lieu on dismissal was therefore extinguished.

Court of Appeal decision

In upholding the EAT's decision, the Court helpfully examined both the legislation and the case law in this area. It confirmed that nothing in Article 7 of the Directive, which provides that every worker is entitled to paid annual leave, expressly states that the worker has to make any form of request if he/she wishes to carry it forward to another leave year because of absence on sick leave.

In relation to previous rulings from the European Court of Justice (ECJ), the Court held as follows:

  • Purpose of paid annual leave: Mrs Larner did not lose her entitlement to paid annual leave for 2009/10. She was prevented from taking her paid annual leave that year due to her sickness and was entitled to take paid annual leave at another time when she was not sick and, if necessary, beyond 2009/10.
  • Carrying forward annual leave: The only permissible option under the Directive would have been to allow Mrs Larner to carry forward her unused paid annual leave entitled into the 2010/11 leave year, as payment in lieu is only permissible on termination of the employment relationship.
  • Opportunity to take annual leave: NHS Leeds could not argue that Mrs Larner had an "opportunity" in 2009/2010 to take paid annual leave. The evidence showed that she was unable to exercise her right to take paid annual leave because of her sickness.
  • Requirements to make request: None of the ECJ rulings laid down a requirement of a request to take paid annual leave or to carry it forward to another leave period.

The Court also confirmed that it would be possible to interpret the Regulations so as to be compatible with Article 7, as interpreted by the ECJ rulings. The Court did not address the issue of whether entitlement to additional leave under the Regulations (which entitle workers to 1.6 weeks more than the Directive) should be treated in the same way as the four weeks' leave entitlement under the Directive.

The Court did touch on the earlier EAT decision in Fraser v. Southwest London St George's Mental Health Trust, which had confirmed that an employee on long-term sick leave is required to request annual leave to be entitled to payment for it. However, the Court distinguished Fraser, on the basis that there was no evidence in that case that the claimant was unable to take leave when she recovered. She had the opportunity to take leave following her recovery to her dismissal.

Interestingly, Mummery LJ noted that the steady succession of references to the ECJ for rulings on the interpretation of Article 7 made him "nervous" about offering judicial guidance, as it may quickly become outdated. However, it is clear from this case that workers on long-term sick leave who have been unable to take annual leave are entitled to payment in lieu of that annual leave on termination.  This applies whether or not the worker has asked to take the annual leave or for it to be carried over.  Although this case focuses only on the four weeks' entitlement under the Directive, there are clear costs implications for employers.

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