Leon Deakin, Associate at Thomas Eggar LLP, looks at the Court of Appeal’s recent decision on holiday rights and long term sickness.
Following the Court of Appeal’s decision in NHS Leeds v Larner now is a good time to examine the best ways of dealing with holiday accrued during sick leave.
What did Larner change?
Prior to Larner it was unclear what happened to statutory holiday entitlement if an individual was on long term sick for more than one holiday year. Many employers relied upon a ‘use it or lose it’ argument but in Larner the Court of Appeal confirmed this was not lawful. Sick employees must be allowed to take statutory holiday at another time, even if this means carrying it into another holiday year.
So what’s the problem?
While clarity on holiday accrual is helpful, this does cause problems for employers, especially if an individual is off for several years. This means there will be a lot of holiday to account for when they return or to pay them in lieu of if employment ends. While most employers would want to avoid individuals being off long term sick for years at a time it does happen and sometimes there is good reason. However, at the end there could now be a big bill.
Surely there is a cut off to the amount of holiday that can accrue?
Unfortunately Larner did not specifically address whether the holiday can accrue across different holiday years indefinitely. There are some European cases that suggest a limit could be imposed but until we get UK court clarity on this we have to assume it could be unlimited.
How does an employer avoid this happening?
It may sound brutal but the most practical way to avoid storing up a potentially expensive holiday liability is to manage long term absence robustly. If an individual is off for a significant amount of time and the prognosis for return is poor the best option may be to progress down a capability termination route sooner rather than later.
A practical option could be to pay the employee in lieu of their holiday as you go along (for example, on a quarterly or yearly basis). While doing this is technically prohibited by the Working Time Regulations and therefore not without risk, if the employee expressly and explicitly consents a tribunal may have less sympathy if they subsequently complain. In addition, any payments made to the individual should be able to be offset against the value of any claim under the Working Time Regulations, minimising the benefit of actually bringing such a claim. Of course, as this necessarily involves stepping outside the law it is an option we do not recommend you take without seeking specific guidance and carrying out a costs v risks analysis.
Another practical option, with the express and explicit agreement of the employee, could be to allocate or assign a period of the sick leave as holiday. Both these practical options minimise the risk of leave accrual and gives the employee a cash boost, which might be welcomed if they have exhausted sick pay or SSP.
Finally, an employer could impose a sensible long stop date in their policy after which time holiday will not continue to accrue. As above there is no specific guidance on whether this would definitely work or how long it would have to be. However, it would need to be over a year at least and would very much be a calculated risk.
If an employee is ill during a period of annual leave, can they now request that the annual leave be reinstated and taken at a later date?
Yes, separate recent case law has sought to clarify this issue, but in practice not much will change. An employee must still adhere to the employer’s sickness absence procedure (e.g. telephoning their line manager on the first morning of sickness). If that does not happen then there is no obligation on the employer to reinstate that period of holiday leave.
Further, if the employer only pays statutory sick pay for periods of sickness absence, an employee is highly unlikely to want to substitute a period of paid leave for at least three days unpaid leave. However, if you are suspicious as to the motives of an employee requesting a rescheduled period on annual leave, you should again follow sickness absence procedures and conduct a return to work interview to determine the seriousness of the illness and whether any issues arise upon their return. This should flush out cases of
employees trying to take advantage of their employer by claiming additional annual leave when they would not ordinarily be entitled to it.