When the European right to a minimum period of paid annual leave was introduced via the UK’s Working Time Regulations (WTR), it was also provided that workers should not be able to carry over any leave into the next holiday year, nor should they be paid in lieu for any time not taken. However, for employees who are off due to long-term sickness and are unable to return before the end of the leave year, what should happen to any periods of untaken leave?
The EU Working Time Directive states that an employee’s right to paid statutory leave should be protected even when off sick, so their entitlement should continue to accrue during their period of absence. The employee then has the choice either to take paid annual leave during their sickness absence or to carry it over to the next holiday year with the intention of taking it when they have returned to work. As the Directive does not specify a time limit for carry-over, this leads to the possibility of employers being forced to make a substantial payment to an employee for several years’ of untaken leave if the employee does not return to work and employment is ultimately terminated. This is contrary to the provisions of the WTR which clearly prevents carry-over of the basic four weeks’ leave, unhelpfully causing uncertainty for UK employers.
However, some light may be at the end of the tunnel following the European Court of Justice’s (ECJ) recent decision in the German case of KHS AG v Schulte, which concerned Mr Schulte’s claim for the payment in lieu of untaken annual leave for the period of 3 years. Under German national law, there is a maximum 15-month carry-over period and the employer stated that, as a result of this, the employee was not entitled to make a claim for the full 3 years’ leave. The ECJ was asked to consider whether such a national rule, setting down a maximum period for carry-over of leave, went against the spirit of the EU Directive. It was held that EU law did not provide an entitlement to sick employees to carry over leave on an indefinite basis, and it is therefore lawful to impose a time limit provided that it is reasonable and “substantially longer” than the leave year itself. In the case of Schulte, a carry-over period of 15 months from the end of a leave year was deemed to be acceptable.
The UK Government has proposed, as part of its “Consultation on Modern Workplaces”, that employees who are absent from work due to long-term sickness should be able to carry forward the basic four weeks’ annual leave to the next holiday year, therefore amending the current provisions of the WTR. However, following the ECJ’s decision in Schulte, it is hoped that the Government will also set down a maximum carry-over period, after which point leave will be lost.
In the meantime, employers are advised to encourage employees to take paid holidays during periods of long-term sickness in the year to which the leave relates, in order to avoid claims for large sums if employment is later terminated. Another word of advice is to ensure that cases of long-term sickness are managed effectively so that employees are not absent from work for years at a time.
