Holiday Pay Q&A - Expert Comments

David Reid
25th Jul 2009

Expert Comments for Employers about holiday pay legislation.

UK Money

Below we answer some of the questions employers may have on this issue:


What did the House of Lords actually decide?


The judgment effectively only relates to the question of which pieces of UK legislation workers can use to claim holiday pay. When the Court of Appeal heard this case some time ago, it decided that the Working Time Regulations provided a self-contained mechanism for claiming holiday pay.


The significance of the Court of Appeal’s judgment was that workers had to bring a separate claim on each occasion they did not receive holiday pay to which they were entitled and would only have three months from the date the holiday pay was due to bring such a claim.


The House of Lords has now reversed this decision. In holding that holiday pay can be claimed under section 13 of the Employment Rights Act as an unauthorised deduction from wages, their Lordships made it significantly easier for workers to claim unpaid holiday pay.


Where there is a claim for a series of failures to pay holiday pay (as might be the case with someone who has been off sick for a substantial period), the employee will now be able to bring the claim within three months of the last of the series of failures to pay holiday pay. This means that employers in Scotland could be liable for up to five years’ arrears of holiday pay and in England up to six years’ arrears.


Are employees on long-term sickness absence entitled to paid holidays?


The simple answer to this question is yes. They have the same entitlement to paid holidays as someone who has a perfect attendance record. In short, your attendance record makes no difference to your entitlement to holiday pay.


What if a long-term sick employee doesn’t request any holidays?


The UK Working Time Regulations treat paid holidays as an entitlement, to be exercised by the employee subject to certain rules. Many commentators agree that an employee who is not off sick but fails to exercise their statutory entitlement to paid holidays loses any unused entitlement at the end of the holiday year. If that is correct, there is no reason in principle why the same would not apply to someone who is off sick. However, as stated above it now seems clear that employees who are off sick can request and take paid holidays just like anybody else. They do not need to come back to work first.


Also, an absentee might be entitled to holiday pay for a period of shutdown without even requesting a holiday, as this is effectively a period of compulsory holiday leave.


Do employers need to make a payment in lieu of untaken holidays to long-term sick employees at the end of each holiday year, or allow these untaken holidays to roll over?


There is no provision under the Working Time Regulations for a payment in lieu of untaken holidays to be made, except where the employment is terminated. In our view, the ECJ decision in the Stringer case did not go as far as to say that a sick worker will normally be entitled to a payment in lieu of untaken holidays at the end of a holiday year, although it seems that might be the case if a national law prevents sickness absentees from taking Working Time Directive holidays. UK law does not prevent this.


Similarly, there is no provision in UK law for the EU law minimum four weeks’ paid holiday to be rolled over from one holiday year to the next, although the additional 1.6 weeks holiday entitlement recently introduced in the UK only can be rolled over by agreement.


Therefore, there is no duty under UK law upon an employer to make a payment in lieu of untaken holidays at the end of the holiday year or to allow these holidays to roll over to the next holiday year.


Even if these UK rules are failing to give UK employees their full rights under the Working Time Directive, at present only public sector workers could directly enforce their EU law rights in the UK courts and tribunals. Private sector employees can only directly enforce their employments rights under UK law.


How does this affect decisions about the dismissal of long-term absentees?


Many employers have delayed policy decisions about whether to take steps to dismiss long-term absentees pending clarification as to whether these employees would be entitled to holiday pay. Arguably, if there was no entitlement to holiday pay, it may be cheaper and safer to leave employees ‘on the books’ than to incur the costs and risks associated with dismissals.


It is clear that there is a potential liability under UK law to pay each long-term sick employee up to 5.6 weeks holiday pay per annum. But as explained above, there is still a strong argument that this liability only arises in the event that employees actually make holiday requests.


There is no single right or wrong answer to this question and the correct approach will often depend on the level of long-term sickness absenteeism within an organisation and the employer’s attitude to risk.


Just Employment Law will be pleased to assist its clients in reaching strategic decisions on this difficult issue.

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