Sickness absence and holiday pay: Stringer case
Maria Hoeritzauer of Osborne Clarke begins a series of articles on sickness absence and holiday pay with a look at the Stringer case and its impact. While it is now established that employees continue to accrue statutory holiday entitlement during sickness absence, and can claim unpaid annual leave as an unlawful deduction, there are unanswered questions concerning employees' entitlement to take paid holiday during sickness absence.
The EU Working Time Directive (2003/88/EC) provides that
workers are entitled to a minimum period of paid annual leave each year. A
payment in lieu of this leave should be made only on the termination of
employment. The Working Time Regulations 1998 (SI 1998/1833) implement this
entitlement for
As a result of Stringer, it is now clear that workers on long-term sick leave continue to accrue paid annual leave and are entitled to receive a payment in lieu of accrued but untaken leave on the termination of employment. Failure to make a payment for any accrued but untaken leave will be a deduction from wages enabling workers to bring a claim under s.13 of the Employment Rights Act 1996. This claim must be brought within three months of the last deduction in any series of deductions.
We take a look at the history of the Stringer case leading up to the final decision reached by the House of Lords.
The employment tribunal
The case started as a claim for holiday pay brought by employees of the Inland Revenue, one of whom was Mr Ainsworth. Mr Ainsworth was claiming for statutory holiday pay, which he argued had accrued while he was on long-term sick leave but not been paid in lieu on the termination of his employment.
The employment tribunal upheld Mr Ainsworth's claim for a payment in lieu of the holiday that had accrued during his sick leave.
The Employment Appeal Tribunal
On appeal (Commissioners of Inland Revenue v Ainsworth and others EAT/745/03), the Employment Appeal Tribunal (EAT) upheld Mr Ainsworth's claim for a payment in lieu of his annual leave. The EAT followed the decision of the EAT in Kigass Aero Components Ltd v Brown [2002] IRLR 312 EAT, where it was held that annual leave under the Working Time Regulations 1998 continues to accrue when a worker is off sick and that a worker may give notice to take annual leave under the Regulations while on sick leave. It also followed the decision in List Design Group Ltd v Douglas and others [2003] IRLR 14 EAT where it was held that claims for holiday pay could be brought under the Employment Rights Act 1996 as a claim for unlawful deduction from wages, as well as under the Working Time Regulations 1998.
The Court of Appeal
The Court of Appeal allowed an appeal by the employer and held (in Commissioners of Inland Revenue v Ainsworth and others [2005] IRLR 465 CA) that the purpose of annual leave is to take a break from work and, as such, leave cannot be taken while a worker is already absent from the workplace. Further, the purpose of annual leave is to safeguard workers' health and safety by giving them a break from work. This objective cannot be said to be met by giving a worker who is already off work on long-term sick leave the right to take paid holiday; this simply results in a financial benefit for the worker. The Court of Appeal therefore held that workers on long-term sick leave could not take annual leave while off sick, could not accrue holiday pay (unless they worked for part of the year) and could not claim payment in lieu of untaken holiday on termination (if they had been off work for the entire holiday year). The issue of to how much holiday a worker would be entitled if he or she had worked for part of the holiday year was left unresolved.
The House of Lords and the European Court of Justice
The employees appealed against the Court of Appeal's decision to the House of Lords, which referred the case to the European Court of Justice (ECJ) (where the case was reported as Stringer and others v HM Revenue and Customs sub nom Commissioners of Inland Revenue v Ainsworth and others; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214 ECJ).
The issues for the ECJ to decide were whether or not:
- a worker on long-term sick leave should be allowed to take annual leave while off sick;
- leave can be extinguished if it is untaken in the relevant leave year due to sickness absence; and
- a worker absent on long-term sick leave (whether for all or part of the leave year) is entitled to a payment in lieu of untaken annual leave.
On the first issue, the ECJ held that national legislation may prevent workers from taking annual leave at the same time as being on sick leave, but only if workers are able to take this leave at a later date. Allowing workers to take paid annual leave during a period of sick leave is also permissible. This is a matter for each member state to decide.
On the second issue, the ECJ held that workers on long-term sick leave do not lose their right to paid annual leave where they have been unable to take this leave as a result of being on sick leave. The ECJ's reasoning was that the right to annual leave applies to "every worker", including those who are absent from work, and that a worker who is on long-term sick leave for the whole leave year has no opportunity to take the benefit of the right. If the worker returns to work before the end of the leave year and therefore has the opportunity to take the annual leave, it is permissible to extinguish his or her right to the annual leave if he or she fails to take it within the leave year.
On the final issue, the ECJ held that workers must be made a payment in lieu of untaken annual leave on the termination of their employment where they have been unable to take their leave due to sickness absence. This payment should be made at the worker's normal rate of remuneration.
Back again - the House of Lords
The case was returned to the House of Lords. At this stage, the employer had accepted that it was under a duty to pay for leave accrued during sickness absence outstanding on the termination of employment. The only issue left for consideration was whether or not workers could claim for holiday pay as a deduction from wages under the Employment Rights Act 1996 as well as claiming under the Working Time Regulations 1998. The significance of being able to claim under the Employment Rights Act 1996 is that it entitles claimants to recover unpaid holiday spanning a number of years. Under the Act, a worker has three months from the last in a series of "deductions" to put in a claim for unpaid holiday pay, whereas the Working Time Regulations 1998 allow a claimant only three months from each deduction to bring his or her claim.
The House of Lords (in HM Revenue and Customs v Stringer and others sub nom Commissioners of Inland Revenue v Ainsworth and others [2009] IRLR 677 HL) found that claims for holiday pay can be brought under the Employment Rights Act 1996 under the deduction from wages provisions, potentially enabling claimants to make a claim relating to a longer period.
What we know
We now know that workers accrue holiday while off sick whether they are absent for part or all of the leave year. We know that they are entitled to a payment in lieu of untaken holiday on the termination of employment. If such a payment is not made, the worker can bring a claim for unpaid holiday under the Working Time Regulations 1998 or under the Employment Rights Act 1996 (as a deduction from wages claim). If the claim is brought under the Act, workers can claim for holiday from previous leave years, which will be expensive for employers and emphasises the importance of good management of long-term sickness absence.
What we don't know
However, the decisions of the ECJ and House of Lords have left a number of questions unanswered, leaving employers in difficult territory until further clarification is provided. For example:
- Does the right to continue accruing holiday during sick leave and to be paid in lieu of such holiday on termination apply to the additional 1.6 weeks' annual leave provided for under reg.13A of the Working Time Regulations 1998 as well as the four weeks' leave provided for under the Working Time Directive?
- It is not clear what is to be done about the worker who never asks to take annual leave while off sick. Should the employer make a payment in lieu of all the holiday accrued during the sick leave? Is the worker entitled to claim a deduction has been made from his or her wages?
- Can an employer insist that a worker on long-term sick leave takes his or her holiday each year? A worker who has exhausted his or her sick pay is likely to be willing to agree to this, as he or she would be entitled to full pay during the period allocated as annual leave, but there would be little incentive to a worker already receiving full pay as contractual sick pay to take his or her holiday.
- If an employee is receiving benefits under a permanent health insurance scheme, can the employer top up the payment made to the employee by the insurer or is the employer liable to pay full salary for annual leave taken during sick leave?
We will now have to wait for further guidance through case law developments or amendments to national legislation.
Next week's article will look at the practical implications of the Stringer judgment for employers and will be published on 10 August.
Maria Hoeritzauer (maria.hoeritzauer@osborneclarke.com) is a solicitor at Osborne Clarke.
Further information on Osborne Clarke can be accessed at www.osborneclarke.com.
