‘Use it or lose it’ principle no longer effective in relation to accrued holidayskip content up to navigation menus
NHS Leeds v Larner
The Court of Appeal has outlined in the case NHS Leeds v Larner the correct approach to be taken by employers in relation to the carrying over of accrued annual leave by employees who have been on long term sickness absence.
The Court of Appeal (“CA”) have determined that employees on long term sickness absence, who have not had the opportunity or who are unwilling to take the holiday which accrues during their absence in a particular leave year, are entitled to carry the accrued leave forward to the next leave year without needing to make a request to the employer to do so.
The decision will be unwelcome to employers, as it confirms that the ‘use it or lose it’ principle is no longer effective.
Background – case law
Over the last few years there have been a number of cases both in the UK and Europe dealing with annual leave entitlement for sick and absent employees. Some of the European cases have caused issues for UK employers as the decisions do not sit comfortably with the Working Time Regulations 1998 (WTR), which give effect in the UK to the Working Time Directive (WTD). The WTD provides member states must allow all workers a minimum of four weeks paid holiday.
These cases with a summary of the decisions are:
Pereda v Madrid Movilidad SA  (ECJ Decision): it was held that where a worker’s prearranged annual leave coincides with a period of sickness absence and the worker does not wish the period of sickness to form part of their holiday entitlement, then the employer will be obliged to grant holiday leave at a later date. It was stated that this could involve carrying leave over to the next annual leave year.
Fraser v Southwest London St George’s Mental Health Trust  (UK/EAT decision): it was held that a worker is not entitled to statutory holiday pay without giving notice to the employer to take holiday leave, as this is contrary to the purpose of the Working Time Regulations (which provides for a period of notice).
Neidel v Stadt Frankfurt am Main  (ECJ decision): it was held that where a national law provides workers with statutory annual leave in excess of the four weeks conferred by the WTD, it does not mean that workers are entitled to payment in lieu on termination for that additional leave entitlement – this is a matter for national law. In this case the worker had not given notice that he wished to carry over the leave but this did not preclude him from receiving a payment for the accrued untaken annual leave on termination.
Facts – NHS Leeds v Larner
Mrs Larner was a Clerical Officer working for NHS Leeds. Mrs. Larner commenced a period of sick leave starting on the 5th January 2009, and was eventually dismissed by reason of capability on the 8th April 2010; she did not return to work during the interim period. Mrs. Larner commenced a claim at the Employment Tribunal seeking to recover payment for statutory holiday entitlement (four weeks) that she did not have the opportunity to take during her sickness absence relying upon Article 7 of the WTD. Article 7 entitles workers to four weeks paid annual leave without any mention of a requirement to request leave. The Trust argued that Mrs. Larner had not given notice that she wished to take her leave prior to the expiration of the annual leave year in question (April 2009 – March 2010). The Trust argued that unless notice was given the holiday entitlement did not arise. Mrs Larner’s claim was upheld at the Employment Tribunal.
The Employment Appeal Tribunal then upheld the decision of the Employment Tribunal, but commented that its decision may have been different if Mrs Larner had been provided with the opportunity to take her annual leave.
Court of Appeal decision
NHS Leeds appealed again to the CA. The CA first of all considered whether Mrs Larner could rely upon the provisions of the WTD against NHS Leeds. It decided that the NHS was an emanation of the state and consequently the WTD had direct effect and Article 7 could be relied upon by Mrs Larner.
Due to her prolonged sickness absence Mrs Larner was not well enough to enjoy the period of relaxation and leisure which she was entitled to under the WTD/WTR (paid holiday). As she did not have the opportunity to enjoy that right, she was able to carry the accrued annual leave over to the next year (as per Pereda), and her right to be paid for that accrued but untaken annual leave crystallised on the termination of her employment.
The CA commented that the situation may be different where a fit worker (i.e. one who was at work) had failed to request holiday entitlement, as they would have the opportunity to exercise their statutory holiday rights. The CA distinguished Larner from the Fraser case, as Ms Fraser eventually recovered and returned to work, and thereby had the opportunity to take her accrued annual leave.
As the CA found that the WTD had direct effect, it did not look at the WTR in any detail. It, however, stated that it would be possible to interpret the WTR so as to be compatible with Article 7 and with this judgement. As such further case law will be required to give effect to this.
Employers (both public and private sector) should allow staff to carry forward their accrued WTR 4 weeks leave if they have been on sick (other) leave and have not had a chance to take that leave.
Employers should consider updating contracts of employment, Employee Handbooks, policies and procedures, in order to reflect that the leave which can be carried forward to the next leave year is the statutory annual leave (20 days) afforded by the WTR only in those situations where a worker is unable to take annual leave due to ongoing (sickness) absence. Any updates should include recording that any annual leave taken will be taken from the statutory entitlement first so as to reduce the entitlement which can be carried over, where possible.
The Government is currently in the process of amending the WTR to reflect and reconcile its terms with recent case law. It is likely that the Larner decision will feature in the Government’s consideration.