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Holiday Pay and Sickness

Outline Guide

What is the extent of employers’ liability to pay holiday pay or carry forward accrued holiday when employees are sick whilst on holiday or are absent for extended sickness or injury?

Although the Government has not yet published its response regarding the proposed amendments to annual leave legislation, the string of high profile cases over recent years provides guidance, which answers most holiday pay and sickness absence questions, but not all!

The right to minimum holiday and holiday pay is set out in the Working Time Regulations 1998 (the WTR), which derives from the EU Working Time Directive (the Directive). National Courts refer questions of EU law to the European Court of Justice (the ECJ), which is the highest Court in Europe, and determines European law. Domestic Courts then interpret the resulting ECJ decision to the facts of any case before it. The ECJ consistently applies EU law across the whole of the EU, making its decisions in respect of referrals from any EU country relevant to the interpretation of our domestic law.

The number of judicial references to the ECJ from the UK and other EU countries on the question of holiday pay and sickness has left a footprint for practitioners to understand how Courts will enforce holiday leave and pay entitlements going forward. It is likely that in the next 12 months this will then be reflected in the domestic legislation.

This note summarises how employers should deal with holiday pay and sickness absence and top tips to stay on top as this area of employment law develops.


A quick canter though the case law gives rise to the following useful conclusions:

  • Following Neidel v Stadt, the ECJ determined that the employee does not need to request annual leave for the right to payment for it to remain.
  • Following Stringer and others v HMRC, the ECJ determined that annual leave accrues during sickness absence and it is for the employee to decide when to take it (not the employer). The employer still must agree when the leave is taken, but cannot prevent it being taken at all.
  • Accrued untaken annual leave entitlement may be carried forward if, due to sickness absence, the employee was unable to take the leave in the relevant holiday year. This applies only to the statutory leave entitlement (Stringer).
  • Accrued annual leave entitled should be taken when practical (Pereda v Madrid Movilidad SA).
  • If a worker is ill during annual leave, they may request that their leave entitlement may be taken at a later date and that the reason for their absence be recorded as sickness absence instead (Asociacion National v Federacion)
  • Where there is a conflict between the WTR and the EU Directive, in so far as possible, English Courts must read the WTR to give effect to the Directive (NHS Leeds v Larner)
  • There is no right to carry over untaken holiday leave indefinitely. If a worker is on sick leave for more than one year then the right may be lost (KHS AG v Schulte), because the right is to take paid leave rather than to receive pay.
  • There is no right to paid bank or public holidays (Campbell v Smith) unless the contract provides otherwise.
  • The employer can fix all leave over fixed holiday periods (Russell v Transocean). This decision is mainly relevant to teachers.
  • Employers cannot force employees to take leave during sickness absence (Pereda).
  • The amount of leave that may be carried over is 5.6 weeks, but the right to payment in lieu of leave on termination is limited to 4 weeks unless the contract provides for more (Neidel).

What proposed legislative changes are we expecting?

The 2011 Consultation on Modern Workplaces proposes the following changes:

  • Allow workers who are unable due to sickness absence to take annual leave during one holiday year to carry over unused leave to the next holiday year.
  • Allow workers to carry forward to the next holiday year annual leave, which they were unable to take due to maternity, adoption, parental and paternity leave (and the proposed new flexible parental leave rights when introduced). 
  • Allow employers to buy out up to 1.6 weeks of annual leave if it is untaken at the end of the holiday year (which is currently prohibited). 1.6 weeks is the increased statutory holiday entitlement added in 2009.
  • Require employees to carry over all or part of the additional 1.6 weeks' holiday entitlement if they were unable to take it, because of genuine overriding business need.

This article was written by Emma Bartlett.