Accrued holiday pay when off sick

 

An Employment Tribunal in Edinburgh has recently dealt with two difficult points about holiday pay entitlement when an employee has been off sick.

In Souter v RCN Mrs Souter had been an Administrative Assistant at the Royal College of Nursing. In 2002 she suffered long-term sickness and was made permanent health insurance (PHI) payments which equated to about half of her salary. In April 2010 she resigned and was told that she would receive a payment for untaken annual leave for the current  holiday year, pro rata for just 3.5 months.

Previously in 2009 the European Court of Justice (ECJ) (HM Revenue & Customs v Stringer) had ruled that an employee off sick is entitled not only to holiday but also to accrue holiday beyond the current leave year if they have had not had the opportunity to take the holiday during the sick leave. In something of a let-out European law does nevertheless permit member states to regulate how any accrued leave should be taken.

Importantly, the UK's Working Time Regulations state that if leave is not taken in a particular holiday year it is lost (Reg’n 13(9)(a).

However, Mrs Souter claimed that she was entitled to holiday pay for holiday not taken by her over the years of her sickness. Medical evidence was given that during her years of sickness Mrs Souter had been so unwell that she could not take holidays.

The Edinburgh Tribunal decided that as a private employer, the RCN was entitled to rely on the Regulations and therefore not pay for years before 2010 Despite the decision in Stringer,  the ET stated accrual of holiday pay was limited to the current year of 2010 only. Previous years' entitlements that had not been taken by Mrs Souter were forfeited even though she was not fit to have taken them.

Secondly the Tribunal decided that someone receiving PHI ill-health insurance is not entitled to additional pay for holiday. When Mrs Souter moved to PHI payments, her contract was varied to provide a lower salary. Therefore, if she had taken holiday, she would have only been entitled to payment at the PHI rate and not previous full rate of pay. The Tribunal said that "her position is no different from an employee who has been at work and has received full salary for a whole year. Such an employee would have no claim for loss of holiday pay, even if they had not...exercised their right to annual leave in that year".

This seems to be a  practical judgment in an area of law that has been prone to producing some odd and impractical judgments. However,  it does seem likely that the decision will be appealed and as it is only a Tribunal decision and not an appellate decision it is not  binding but perhaps persuasive.
The decision highlights that the Regulations do not comply with the European Directive as interpreted in Stringer. Private sector employers can feel relieved that the tribunal was not inclined to stretch the domestic wording: public sector workers may not be so lucky.

Also, the Tribunal’s finding that the contract had been “permanently varied” regarding the PHI remuneration is  startling.  If there has been such a permanent variation, then this will have a knock-on effect on benefits which are related to salary, such as pension rights. Watch this space and employers should proceed with care if choosing to refuse to pay accrued holiday pay for concluded years. The facts of this case were unusual overall and other cases may be easily contrasted.

This is one of those cases in which one feels that the right decision was reached at a practical level but that is not to say that a more precise legal interpreation of all the facts willnot reach a different conclusion.

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