January 2009:
Setback for businesses as sick leave staff entitled to holiday pay
In what has widely been regarded as a hindrance to businesses dealing with the current economic climate, the European Court of Justice has ruled that employees taking long-term sick leave are entitled to accrue paid holiday on the basis that they could not take time off due to sick leave.
The controversial decision from the ECJ came after the House of Lords requested clarification over the rights to long-term sick leave of five of Her Majesty Revenue and Customs workers. It reverses a four-year ruling from the Court of Appeal that made workers ineligible to claim holiday pay.
The decision, which could see many employees receive a lump sum payment for accrued holiday pay when leaving a company after long-term sick leave, has infuriated businesses. Mark Mansell, head of employment at City law firm Allen & Overy advised that the ruling could prove costly for employers who have a “backlog of accrued holiday entitlement” from employees returning to work.
Regarding the ruling, Katja Hall, director of HR policy at the CBI, commented; “This is a real blow to firms trying to keep jobs alive during the recession. Businesses themselves also suffer when staff take sick leave, and we had hoped that a compromise could have been achieved over unused holiday time.
“Instead, at a time when the economy is struggling, this judgment will ensure that staff are away from the workplace for longer. And it will create a headache for HR departments, who will have to review their policies and contracts.”
Philip Titchmarsh, employment partner at Pinsent Masons LLP, elaborated; “What is clear from the ECJ decision is that holiday, under the Working Time Regulations, continues to accrue while an employee is off sick. Employees will have to be allowed to carry this forward from one holiday year to the next. This is despite what an employee's contract of employment might say. The Working Time Regulations are likely to have to be amended to reflect this part of the ECJ's decision.”
Employment lawyers commented that key details determined by the House of Lords would have to re-interpret UK law to reflect the ECJ ruling.
Some 2.6million people in the UK are claiming incapacity benefits, with sick leave estimated to cost the economy approximately £100billion annually.