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Taking the Sunshine out of HolidaysTaking the Sunshine out of Holidays

» Posted on: 19 June 2009
» Posted by: Oliver McCann
» Service area: Employment

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With Summer upon us, The House of Lords has finally delivered its decision in Stringer and Others v HMRC on the long running and hotly debated topic of a workers entitlement to holiday pay during sick leave.

The ECJ decided in January this year that:

  • a worker who is on indefinite sick leave for the whole of an annual leave year is entitled to a period of four weeks’ paid annual leave, despite the fact they are not actually at work; and
  • the right to paid annual leave is carried over at the end of a leave year if the worker was on sick leave for the whole of that year; further he does not lose this entitlement if he was absent on sick leave for part of the year and was still on sick leave when his employment terminates

The parties accepted the ECJ judgement in this regard and so the House of Lords only had to decide whether a claim based on an alleged failure to make payments due under Regulations 13, 14 and 16 of the Working Time Regulations 1998 (“WTR”) be brought by way of a claim for unauthorised deduction from wages under Part II of the Employment Rights Act 1996?

The House of Lords decided they can. This means that a claim can brought for a failure to pay holiday pay can extend to successive holiday years where the claim relates to a series of failures to pay. The only limitation is to lodge a claim within 3 months of the last deduction. Before, a claim under the WTR had to be brought within three months beginning with the date on which it is alleged that the exercise of the right under the WTR should have been permitted, preventing workers from pursuing holiday pay spanning back years!

In a nut shell the decision means that a worker can accrue and take statutory holiday during sick leave, which will not be welcome news for employers. Where there is a failure to pay holiday pay over a number of years then the worker can claim back all lost holiday pay where it forms a series of deductions.

For those with employees’ on long term sick extending beyond 1 year then there is a potential exposure up to 6 years worth of holiday pay (being the limitation as to how far back a claim can be pursued for unlawful deductions). One method to limit your exposure with these employees’ is to now make payment for last years holiday entitlement only explaining that you have done so in light of a change in the law. By doing so you break the series of deductions meaning the 3 month limitation period starts running against the employee as soon as you make payment. Most employees’ will be unaware of their specific entitlements and by the time they do it will be too late to claim!

Employers who operate PHI schemes may wish to address how they approach PHI payments in conjunction with holiday pay. It may be necessary to liaise with the provider and agree that any PHI payments payable during a period of holiday pay can be retained by the business as part recoupment of its holiday pay costs. The alternative is to renegotiate the PHI premiums down to cover a maximum of 46.4 weeks pay per annum per employee which takes into account your liability to pay 5.6 weeks holiday pay per year regardless of the fact that an employee is off on long term sick. At least you recover some of the extra cost arising from this decision.

For further information on holiday issues or any other employment issue contact Oliver McCann on 01254 297930.

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