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Long term sick employee recovers backdated holiday pay

An employee on long term sick leave has recently been awarded holiday pay backdated for 15 months from his termination of employment. In Rawlings v The Direct Garage Door Company Ltd, the employee had been off sick for over two and a half years. He asked for and received payment in lieu of holiday not taken during 2004 and made a similar request in 2005 which was not paid. Following the termination of his employment in 2006, Mr Rawlings argued that the company had made a series of unlawful deductions by their failure to pay holiday pay to him in 2005 and 2006 and relied on the House of Lord’s decision in Stringer v HMRC to support his claim (for more information on Stringer, please see the June 2009 Employment Online article, ‘Sickness and annual leave – uncertainties remain despite House of Lords’ decision’).

The tribunal held that the Working Time Regulations do not properly implement the Directive in relation to an employee’s entitlement to paid leave in a year in which he can not take holiday due to sickness. However, it agreed that the company’s non payment of holiday pay amounted to an unlawful deduction from wages and that this was the only way the Directive could be properly implemented.

Mr Rawlings was therefore able to recover payment for untaken holiday which amounted to £1,555.00 for a 15 month period. Mr Rawlings was a relatively low earner. However, in the financially difficult climate in which many businesses are now operating, it is easy to see how similar claims will mount up and can make a significant dent in the company’s balance sheet.

There are still a number of issues that remain unresolved about the payment of holiday during sick leave. Employers should audit their staff to ascertain how many are on long term sick leave and look at whether dismissal due to capability is a cheaper option than allowing those on long term sick leave to remain on the books. Obviously employers will have to follow a fair procedure and also look at reasonable adjustments in the case of disability before dismissing.

Other relevant issues include:

  • Does an employee have to ask to take holiday during a period of long term absence in order to receive payment? We believe that an employee on long term sick leave should ask to take paid holiday during a period of absence. If the employee does not make a valid request, then no payment has to be made. However, the position changes once the employment ends. As the Rawlings case demonstrates, an employee can bring a claim for unlawful deduction from wages for unpaid holiday in the leave year of termination and in previous years.

    Employers with a lot of staff on long term sick leave may therefore wish to limit their liability by paying employees on long term sick leave a payment in lieu of holiday in the current leave year. This should prevent the employee being able to claim holiday pay for the preceding year or years as there will not be a “series” of deductions.

  • Does working time holiday relate to the 28 days permitted under UK law, or the less generous 20 days under the Directive?We believe that a tribunal is likely to apply the principle of paid holiday to the increased limit of 28 days. However, this point is untested and employers may be able to persuade their staff to accept 20 days pay allowable under the Directive. Employers should also ensure that their policies make it clear that employees benefitting from more generous contractual holiday schemes do not accrue contractual holiday over and above their working time entitlement to limit their liability to 20 or 28 days.

This remains a challenging area. A number of cases were stayed pending the outcome of the Stringer litigation which are now coming before the tribunals. This case and others before it demonstrate the pro-employee stance that tribunals are adopting. It is therefore essential that employers with employees on long term sick leave take advice now to limit their exposure to such claims.