The European Court of Justice (ECJ) has ruled that workers who are on sick leave remain entitled both to accrue and take their statutory paid holiday entitlement.

The judgment concerned two cases that had been referred to the ECJ, one from the UK and the other from Germany, for guidance on the proper interpretation of the right to annual leave under the EU Working Time Directive (WTD).

Previously, the main UK authority on sickness absence and holiday was the Court of Appeal's decision in the Commissioners of Inland Revenue v Ainsworth and others [2005] IRLR 465.  The Court held that paid annual holiday under the UK’s Working Time Regulations 1998 (WTR) could not be taken while a worker was on sick leave, and a worker who was off sick for an entire holiday year lost their entitlement to paid annual holiday for that year. 

This overturned an earlier Employment Appeal Tribunal (EAT) case which said that annual holiday both accrued and could be taken while a worker was on long-term sick leave (Kigass Aero Components v Brown [2002] IRLR 312).

The claimants in the Ainsworth litigation appealed to the House of Lords (whereupon the case became known as Stringer and others v Her Majesty’s Revenue & Customs) and the Lords decided to refer a number of questions to the ECJ.  A German court had already asked the ECJ to consider whether workers are entitled to paid annual holiday during a long period of sickness absence (Schultz-Hoff) and the two cases were joined together for the ECJ to consider the issues arising.

The ECJ’s judgment is quite dense and complex, but the key points can be summarised as follows:

• A worker who is on sick leave remains entitled to paid annual holiday even though they are not actually at work or have not been at work for any part of that holiday year.
• It is for national legislation to determine whether paid holiday should be taken during sick leave or afterwards - even if this involves carrying holiday forward into a subsequent holiday year - as long as the worker receives the holiday at some point.
• On termination of employment, where a worker has been unable to exercise their right to paid holiday due to sickness absence (whether for the whole or part of a holiday year) they should be entitled to a payment in lieu of all the paid annual holiday that they had been unable to take, including holiday carried over from a previous holiday year. Payment should be at the worker’s normal rate of remuneration.

What are the implications?

The decision has naturally been hailed as major a victory for workers. It clearly establishes that holiday under the WTD accrues during sick leave and that workers on long-term sick leave should not forfeit their entitlement to paid annual holiday.

However, it is not yet clear when workers in the UK will be able to benefit from their entitlement. The ECJ said it is for national legislation to determine whether holiday should be taken during the holiday year whilst the worker is on sick leave, or whether it can be stored up to be taken once the worker returns to work or to be paid out on termination of employment.

There is nothing currently in the WTR to preclude workers from taking annual holiday whilst on sick leave, during the current holiday year. It therefore appears that the position in the Kigass case (see above) has now been restored: statutory holiday both accrues and can be taken during long-term sick leave.

However, the WTR currently provide no right to carry forward entitlement to paid holiday from one holiday year to the next. It is possible that the WTR may either have to be amended or construed by the courts (if this is possible) to give effect to the ECJ’s decision. 

On the other hand, the ECJ’s ruling seems to say that it is for UK law to specify when a worker’s holiday entitlement must be taken.  On that basis, the current rule – that WTR holiday must be taken during the current holiday year or forfeited – is arguably consistent with the EU law position.

The next stage will be for Stringer v HMRC to return to the House of Lords. It remains to be seen whether the Lords will determine how far the WTR can be construed to give effect to the ECJ's decision or whether it will send this issue back to the employment tribunal.

Stringer and others v Her Majesty’s Revenue & Customs; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214 – click here for the judgment