Use it or lose it? | New rules on carrying over annual leave lost to long-term sickness absence

With 2019 almost over and many employers approaching a new annual leave period, if you have staff off on long-term sick with annual leave left untouched, you may be wondering what the rules are when it comes to carrying it over into next year.

Right on cue, the Court of Justice of the European Union (CJEU) has handed down an important judgment on the matter, offering some long-awaited clarity on whether employers are obliged to permit carry-over of annual leave from one year to the next in cases where employees were unable to take all of their leave due to sickness absence.

Background

In the UK, workers are entitled to 5.6 weeks’ (28 days’) paid holiday in each leave year. This comes from two separate provisions:

  • Four weeks’ (20 days’) paid holiday provided for under the EU’s Working Time Directive (WTD) 2003/88/EC (often referred to as “basic leave”); and
  • 1.6 weeks’ paid holiday provided for under the UK’s Working Time Regulations (WTR) 1998 (often referred to as “additional leave”).

In essence, UK holiday entitlement “gold plates” the minimum requirements of European law to give workers additional paid leave. This distinction is important, as the four weeks of basic entitlement granted under the WTD is subject to EU law, while the additional leave granted under the WTR is not.

The rules surrounding sickness and annual leave carry-over

Under the Working Time Regulations, workers cannot carry over any of their unspent four-week annual leave entitlement into the next holiday year. The section that prohibits this, Regulation 13, derives from EU law. However, because the UK is free to set its own rules regarding the additional 1.6 weeks’ leave, this can be carried forward in accordance with a “relevant agreement” (usually the Contract of Employment or a recognition agreement with a trade union).

As you might expect, people began to challenge this, as it meant that workers off on long-term sickness absence effectively lost leave that they were otherwise entitled to. Feeling that this put these workers at a detriment, a number of cases have been brought before the European Court of Justice (ECJ) in recent years, which resulted in the ECJ conceding that workers should be able to take their four weeks’ annual leave at another time if it coincides with a period of sickness or is affected by maternity leave.

So, what's the problem?

While this provided clarification on whether it is permissible to carry leave forward, as a European decision, the ECJ’s determination was only concerned with the four weeks’ basic leave only. The question therefore remained:

If workers are able to carry annual leave forward, does this apply to just the four weeks provided for under EU law or additional leave also, such as the full 5.6 weeks granted in the UK?

This is the question that the CJEU sought to answer in the recent case of TSN v Hyvinvointialan. Here, the CJEU considered two combined cases in which employees were unable to take all of their leave (of five and seven weeks respectively) in one year due to sickness absence.

In Finland, where the cases originated, national rules prevent employees from carrying over any more than four weeks’ leave. However, the employees argued that rules that allow the carry-over of the statutory four weeks under the Directive should also apply to any additional leave granted under national law or collective agreements.

Ultimately, the CJEU disagreed. It held that any additional leave beyond the four weeks granted by the WTD is governed not by the Directive but by national law. As such, EU member states are free to impose national rules which provide for more than the minimum period of four weeks’ leave, while at the same time prohibiting the carrying over of those days of leave on the grounds of illness.

For UK employers, this confirms that in the absence of any contractual provision, there is no requirement to carry over any more than four weeks’ statutory leave in cases of long-term sickness absence.

James Tamm

Director of Legal Services

Expert Comment

This is a welcome confirmation from the European courts that carry-over only applies to four weeks’ annual leave and confirms an EAT decision from 2017. Whilst this particular decision relates to sickness absence, it is worth remembering that there are other circumstances where carry-over of four weeks leave is permitted, the most common of which is women on maternity leave.

In addition, where a worker does not have an effective opportunity to take their holiday entitlement within the leave year, that too can be carried over. This highlights the importance for employers of not only tracking how much leave someone has taken but making sure employees have the chance to take their holidays prior to the end of the year. This will require some planning to avoid a last-minute rush and it is best practice to periodically remind employees how much leave they have and encourage them to take it.

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