Carrying Over Holiday Pay When Sick

Claire Darwin

This piece was orginally posted on Daniel Barnett’s employment law bulletin, and is reposted here with thanks.

The hard-working judges in the CJEU have yesterday, in KHS AG v Schulte (C-214/10) handed down a judgment which casts doubt on whether a holiday taken pursuant to the Working Time Directive should involve mere relaxation and leisure.

It is now long established that workers on long-term sick leave accumulate holiday (Stringer v HMRC (C-350/06)). However in Schulte the CJEU confirmed that this right is not without limits, and that to allow workers to accumulate unlimited amounts of holiday entitlement, or pay in lieu, does not reflect the purpose of Article 7 of the Working Time Directive. Whilst many of us might disagree with this, the CJEU held that holiday taken after a certain point in time ceases to provide a rest from work, and becomes “merely a period of relaxation and leisure”. They held that a holiday which involves mere relaxation and leisure, but does not provide a worker with a rest from work, is not consistent with the aim of Article 7 of the Working Time Directive.

In Schulte, the CJEU had to consider whether German national law, which provides that workers lose their right to holiday (or pay in lieu) at the end of a “carry over period” of 15 months (starting at the end of the year in which the holiday entitlement had arisen), was compatible with Article 7 of the Working Time Directive.

The CJEU held that it was compatible, and gave the following useful guidance on the use of so-called “carry over periods”:

  • Any carry-over period must be substantially longer than the reference period for the holiday year in respect of which it is granted (Readers will remember that in Schultz-Hoff and Others the CJEU commented that a carry-over period of 6 months was not compatible with the Working Time Directive);
  • It must ensure that the worker can have, if need be, rest periods that may be staggered, planned in advance and available in the longer-term;
  • It must protect employers from the risk that a worker will accumulate lengthy periods of absence; and the consequent difficulties in organising work which lengthy periods of absence might entail.

It is noteworthy that the CJEU in their judgment stressed that the entitlement to paid holiday is a particularly important principle of EU social law from which there can be no derogations. Further, Advocate General Trstenjak in his opinion held that the effect of the Schultz-Hoff decision is that the entitlement to paid holiday cannot be undermined by imposing conditions that are difficult to meet. This rather casts doubt on the EAT’s recent decision in Fraser v St George’s NHS Trust where it was held that an employee absent on sick leave still had to give proper notice pursuant to Regulation 15 in order to be entitled to paid annual leave at a later date.

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