MT Expert - Legal: Stringer ties us up in knots

DLA Piper's Tim Marshall explains the latest ruling on giving holiday pay to staff on long-term sick leave.

Last Updated: 31 Aug 2010

HMRC v Stringer, arguably the most eagerly-awaited legal decision of the year, has been something of a damp squib. It was expected, finally, to give a definitive answer to the statutory holiday entitlement of a worker who has been on sick leave for some or all of the holiday year. Not so. Rather than resolving this issue once and for all, the House of Lords has instead got us all tied up in knots.

At the heart of this case are three key issues.  Firstly, are workers entitled to take paid holiday during sick leave? Secondly, are workers whose employment is terminated following a period of sick leave entitled to be paid in lieu of untaken holiday on termination?  Finally, do holiday claims have to be pursued exclusively under the Working Time Regulations (WTR) or can they also be issued as unlawful deductions from wages claims under the Employment Rights Act 1996?

After a long journey through the UK's appellate courts, the House of Lords asked the European Court of Justice (ECJ) to rule on the issues. Contrary to the existing Court of Appeal decision, the ECJ held that a worker can take paid annual leave during sick leave. It also held (in direct conflict with the WTR, which prohibits carry-over of statutory holiday) that where a worker is unable to take paid annual leave, they must be allowed to carry it over to the following leave year.  Further, it said that on termination of the employment relationship, a worker must be paid in lieu of any untaken annual leave, even if they have been on sick leave for the whole or part of the leave year.
The House of Lords was expected to implement the ECJ's findings and explain how the conflict with the WTR should be addressed. Disappointingly, as a result of advance agreement between the parties on the main issues, the House of Lords' judgment leaves more questions than it answers.

What is clear is that:
- workers on sick leave are entitled to paid statutory holiday
- a worker is entitled to payment in lieu of untaken holiday on termination regardless of any absence on sick leave; and
- claims for holiday pay, and pay in lieu of holiday, can be pursued as claims for unauthorised deductions from wages (thereby potentially allowing a worker's claim for payment in lieu on termination to go back for their entire period of absence).

However, a number of important questions remain unresolved, causing a real headache for employers managing sickness absence. For example:
- In what circumstances will a worker be 'unable' to take their holiday? How does carry-over of that holiday fit with the WTR?
- Does the Stringer decision apply to Working Time Directive leave only (4 weeks) or the more generous WTR leave (5.6 weeks)?
- How does an employee on PHI (Permanent Health Insurance) take holiday and at what rate should any holiday be paid?

These questions will remain unanswered until further litigation sheds more light. In view of this, employers will have to tread cautiously. Possible ways of minimising liability include directing staff to take holiday during sick leave. Employers can also attempt to crystallise any unlawful deductions claims by waiting until more than 3 months into the current holiday year before terminating an employee who has been off sick for more than one year, and paying in lieu of the current year's holiday. As the situation can be ambiguous, it is strongly advised employers seek legal counsel if there is any doubt on a particular worker's case.

Tim Marshall is UK Head of Employment at law firm DLA Piper.

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