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Working Time Regulations: Sick vs annual leave

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23rd Nov 2012
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Readers may remember the Modern Workplaces consultation published by the government in 2011, explains Diana Bruce, senior policy liaison officer at the Chartered Institute of Payroll Professionals.

It detailed proposals in four key areas: 

  • A new system of flexible parental leave
  • A right for all employees to request flexible working
  • Measures to encourage equal pay for equal work between men and women
  • Changes to the Working Time Regulations affecting the interaction of annual leave with sick leave and family-friendly leave

The government published its response to the equal pay element of the consultation back in July and intends to proceed with the requirement for employers who lose an employment tribunal case on equal pay to carry out a pay audit. Further consultation is planned on the exact details of how the audits will operate and what publication requirements will apply.

Just last week the government published its response to the flexible parental leave and flexible working elements of the consultation. Flexible working is to become available to all in 2014 and a new system of flexible parental leave is to be introduced in 2015.

However the one area that we still have not had a response to is the much needed amendments to the Working Time Regulations. Confirmation of the changes to provide clarity for employers when dealing with the interaction of annual leave and sick leave was hoped for by October 2012. Given that we are fast approaching the end of the year, it is unlikely that we will have word before 2013; however there is still the Autumn Statement to be delivered by the Chancellor on 5 December so there may well be reference to the changes then.

Why do the Working Time Regulations require amendment?

The right to statutory minimum holiday entitlement has existed in the UK since 1998 and the principle that holiday entitlement continues to accrue during sickness absence is now well understood since the court rulings of Stringer v HMRC in 2009. However, some questions still remain unanswered and how and when holiday rights can be taken by those on sick leave has been considered by the UK and European courts on a number of occasions over the last few years. However the decisions reached in these cases have not always been consistent and courts are in effect creating new law to deal with issues that are not properly addressed by the Working Time Regulations (1998) and it is therefore no surprise that employers are left perplexed and employees do not understand their entitlements when they are on sick leave, particularly long-term.

The Working Time Directive (WTD) is a European Directive which applies to the UK and under which the UK’s Working Time Regulations (WTR) 1998 were formed. The Working Time Regulations gives almost every worker the right to four weeks paid holiday per year, or proportionally for part of a year. For a full time worker who works 5 days a week they would be entitled to a minimum of 28 paid day’s holiday per year. The worker may of course be entitled to more than this statutory minimum under the terms of their employment contract. Under the Working Time Regulations a worker has no right to carry untaken holiday forward to the next leave year and legally, this includes bank and public holidays taken off work. Neither the European Working Time Directive nor the UK Working Time Regulations, cover bank and public holidays. Legally the right to take bank and public holidays therefore continues generally to be a matter for agreement between employers and their employees. As there are eight bank and public holidays in England, the practical effect is that if bank and public holidays are taken as days off work the legal entitlement to annual holiday can be regarded as being only 20 days.

Until the Working Time Regulations came into force in 1998, holiday rights in the UK were generally simply a matter for agreement between an employer and an employee. There was no general statutory provision giving employees a right to holidays, nor to pay in lieu of any untaken holiday. This was changed by the Working Time Regulations which were made to fulfill the UK's obligations under the European Working Time Directive.

The Working Time Regulations give a worker the right to their normal weekly pay in respect of holiday entitlement and if they do not take holiday they cannot claim pay in lieu unless the employment has ended. An employee is entitled to written particulars of their holiday entitlement under the Employment Regulations Act 1996 and it is also automatically unfair dismissal to dismiss an employee for asserting their right to annual holiday under the Working Time Regulations.

Employment tribunals

To follow is a summary of just some of the court rulings that have been adding to the complexity for employers.

Stringer v HMRC - Annual leave accrual during sickness absence

Holidays continue to accrue during periods of sickness absence and entitlement to paid holiday under the Working Time Directive continues when a worker is absent on sick leave.  Claims for unpaid holiday can be brought as a claim for unlawful deduction of wages in the UK.

Pereda v Madrid Movilidad SA - Sickness during annual leave

If an individual is on sick leave when a period of annual leave was scheduled to start, or alternatively, if the individual becomes sick during a period of annual leave, they can choose how they want the period to be designated. The employee can choose to request that the annual leave be rescheduled even if that later time falls into the next leave year, in which case the employer is obliged to grant that request.

Dominguez v Centre informatique du Centre Ouest Atlantique - Paid annual leave not conditional on minimum period of work

It is contrary to the Working Time Directive for national legislation to make entitlement to paid annual leave conditional on a worker having worked a minimum of 10 days for the same employer in the holiday year. The government will not be able to deny workers on long-term sick leave their minimum four weeks' paid annual leave under the Working Time Directive on the basis that they have not worked a minimum period during the year. 

NHS Leeds v Larner - Holiday requests during sickness absence

The entitlement to paid annual leave of a worker absent for the whole of a pay year through sickness does not depend on the worker submitting a request for that annual leave before the pay year ends. So workers who are unable to take leave because of sickness absence are not required to formally request leave for it to be carried over to another leave year.

Asociación Nacional de Grandes Empresas de Distribución (ANGED) - Reclaiming holiday if sick on annual leave

A worker who becomes unfit for work during paid annual leave is able to discontinue their leave and take a period of leave of the same duration as that of the sick leave at a later date.  That right exists irrespective of the point at which the incapacity for work arose. Currently, employers are not under a duty to inform workers of their right to take annual leave whilst on sick leave.

Neidel v Stadt Frankfurt Am Main - Can employees carry over four weeks or 5.6 weeks?

European law does not require that employees be paid in lieu of additional leave (over the minimum four weeks) that cannot be taken because of sickness. The court had previously found that a period of 15 months’ carry-over of untaken leave is likely to be adequate before it is lost.

Amendments should provide clarity for employers

The Modern Workplaces consultation stated that where someone has been on sick leave, it is proposed to allow employers to limit the ability to carry over annual leave to the four weeks of leave required under the WTD. I.e. excluding the additional 1.6 weeks required by the WTR and any further contractual leave. The proposals will also mean that employers can, if they wish, insist that leave untaken due to sickness absence must be taken in the current leave year (where possible) rather than being carried forward. There will also be provision to allow employers additional flexibility in that they can defer that leave until the following year when this can be justified in terms of business need. Views were also sought on further options for increasing the flexibility for employers around the operation of statutory annual leave. Employers could, for instance, be allowed to ‘buy out’ the additional 1.6 weeks or could be allowed to require employees to defer that leave until the first six months of the following leave year, and again only if this can be justified in terms of business need.

These changes are a very positive move as they will provide clarity for employers and will tie in nicely with one of the government’s objectives in their overall review of the tribunal system to reduce the number of cases going through the courts. However as mentioned at the beginning of this article, we are still waiting for a response to this consultation and also a definite date for implementation. And of course some of the changes could be a further financial burden for UK businesses at a time when they can least afford it. The government’s intention is to introduce secondary legislation to amend the Regulations and the CIPP has requested that further consultation be undertaken to ensure that the government get these important amendments to the Working Time Regulations right.

Employer considerations

While many of these rulings and proposed changes to regulations are positive towards employees, they may not be as good for employers as entitlement to accrued annual leave when employees are off sick is a real expense to business. And of course there will always be some workers who will try to abuse the rules, particularly in light of the judgment about reclaiming holiday if sick on annual leave.

There are some processes that employers could consider to help reduce the likelihood of holiday entitlement abuse and to mitigate costs for businesses: 

  • Specify how much holiday can be carried over and perhaps limit this to the four weeks' statutory leave as per the Working Time Directive
  • Minimise the cost and risk of accrued annual leave by contractually limiting the carry-over period for leave
  • Include a specification for medical certification of sickness (regardless of length of sickness period) into annual leave policies and employment contracts
  • Ensure long-term sickness absence is managed effectively from an early stage:
    • if the period of absence is reduced it will limit the annual leave accrual
    • review the continued employment of employees on long-term sick leave with regular contact and meetings (if the employee has a disability under the Disability Discrimination Act, care should be taken not to terminate employment for discriminatory reasons)
    • weigh up the benefits of a generous contractual sick pay entitlement as a recruitment tool against the disadvantages
    • consider reducing the additional cost of sick leave by reducing employees' contractual entitlement to sick pay but bear in mind that contractual changes for existing employees can only be made with their consent. Consider offering a bonus for 100% attendance to offset
    • consider making reasonable adjustments to help employees return to work or continue performing their role

If in doubt employers should of course seek legal advice but hopefully several of the areas causing uncertainty will be clarified when the government confirm their amendments to the Working Time Regulations. 

However, regardless of the forthcoming changes, it is very important for employers to ensure that employment contracts and absence and sickness policies in the workplace are as robust as possible.

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