Good news for employers as long-term sick holiday accrual rule overturned

The Court of Appeal (on Friday 22 April), in a case called Commissioners for the Inland Revenue v Ainsworth and others, has decided two important holiday pay issues:

Point 1

The Court of Appeal has held that workers or employees who have exhausted their entitlement to contractual and statutory sick pay are not entitled to holiday pay when absent from work.

Regulation 13 of the Working Time Regulations 1998 provides that workers are entitled to four weeks’ paid annual leave. Individuals in these cases were absent from work on long-term sick leave. They claimed in the tribunal that their entitlement to paid holiday under the Regulations continued even while they were not attending work. They based their claims on the EAT’s earlier judgment in Kigass Aero Components Ltd v Brown 2002. That case decided that even though the right to paid leave under the Regulations attached to ‘workers’, workers didn’t have to be at work or working to get holiday pay.

Overturning the Kigass EAT decision, the Court of Appeal criticised the approach taken in Kigass. It said that the EAT had concentrated on the definition of ‘worker’ when it should have been concentrating on the word ‘leave’. The Court of Appeal basically said that if the EAT had concentrated on the word ‘leave’ it would have worked out that to get holiday pay you have to be on leave from something. In other words, you have to be working to take leave.

As such, the Court of Appeal held that the right to four weeks’ statutory paid holiday under the Working Time Regulations 1998 does not continue to accrue whilst an employee is off on long-term sick-leave. This overrules the EAT decision in Kigass and is good news for employers as it avoids employees on long term sick receiving a windfall of 4 weeks’ pay per year.

This part of the case involved two types of individuals. The first were those that applied for holiday at a time when they were off sick. The decision was that, as leave must mean leave at a time when the individual was working, they couldn’t take the leave and thus get the pay. The second were individuals who had left and then claimed accrued but untaken holiday pay under the Regulations. The decision of the Court of Appeal in their case seems simply to be that if the first group can’t have paid leave, the second group can’t either.

The decision raises lots of questions as to what an employee is entitled to if they have been working at the point of departure but have had had lots of sick leave prior to returning. In other words, is it the case that an employee can’t take paid leave under the regulations if absent when they want to take it, or is it that paid leave doesn’t accrue at all when sick. We believe that it is the former, so difficult issues will arise if a long term sick employee attempts to return to work briefly just so as to be able to take paid holiday leave. The Court of Appeal did say that it expected the regulations to be amended quickly so as to clear anomalies up.

Point 2

The Court also overturned the EAT’s decision in List Design v Douglas (2002) to hold that employees cannot recover unpaid statutory holiday via a “Wages Act” claim under the Employment Rights Act 1996. The importance of this finding is that by using a “Wages Act” approach, employees could claim back from a number of years if the non-payments of holiday pay were part of a “series of deductions or payments”.

One of the cases that have been overruled involved two commission-only salesmen who were held to be ‘workers’ under the Working Time Regulations. The individuals were able to claim that non-payment of holiday pay amounted to an unlawful deduction from wages under the Employment Rights Act 1996. S.23(1) of that Act allows claims to be brought within three months of the last in a series of deductions. Bringing a claim under this section allowed them to avoid the requirement of Regulation 30 of the Working Time Regulations, which states that claims must be brought within three months of the initial breach of the right to annual leave. The Court, in this case, found that the unlawful deduction from wages law had been drafted a long time before the Working Time Regulations and that the later Regulations must be taken as providing a ‘one-stop shop’ for the enforcement of the new statutory rights to annual leave.

See the resources section of this web site for an explanation of the difference between employees, workers and the self-employed.