3 Oct 2016

Dear Auntie

I run an ice cream company with a fleet of ice cream vans. We have a driver on long-term sick leave who sadly does not seem to be making a recovery. Our contracts are very basic. His rights to sick leave and annual leave are governed by the Working Time Regulations.

This employee is now arguing that he has the right to take out his four weeks’ annual leave at full pay or be granted pay in lieu under the Regulations. This cannot be right, can it? With that added cost, we might prefer to dismiss him rather than continuing to await his recovery.

Mr Lollie

Dear Mr Lollie

Your employee has apparently been spending some of his sick leave time brushing up on the Regulations. And, perhaps surprisingly, this column might have advised you, until recently, that he was correct. However, it seems your employee has not received the latest set of law reports and caught up with the most recent developments.

Background to annual leave and pay in lieu

The Regulations were enacted in order to give effect to European employment standards. They aim to prescribe “minimum health and safety standards for the organisation of working time.” Regulation 13 entitles all “workers” to four weeks’ annual leave in each leave year. Because of the health and safety imperative, the right is to the holiday, not to the pay as such, so payment in lieu only happens in the year when the employee leaves employment. Regulation 14 provides a mechanism on termination for the payment in lieu of any annual leave not taken during the year. Sick leave arrangements differ significantly between employers. However, whilst on sick leave, the worker remains “on the books” and the employment contract remains in effect, e.g. the employee remains bound by confidentiality obligations etc. That, arguably, included the right to statutory holiday under the Regulations, too. However, the courts were aware of a potential undesirable consequence: that cost-sensitive employers such as yourselves might terminate employment rather than allowing it to continue where there is long term sickness absence. I should emphasise here, though, that you should be very careful about dismissing someone on sick leave because of the potential for unfair dismissal claims based on disability discrimination.

Latest developments

Fortunately now, you will not have such pressure to dismiss. The Court of Appeal has very recently reversed the position in a set of cases involving employees such as your driver. The employers successfully argued that “leave” only makes sense where someone is absent from what would otherwise be working time. This ruling is underpinned by the argument that annual leave must be seen in the context of health and safety standards. Requiring employers to grant annual leave for an arbitrary period to workers on long-term sick leave “simply produces a windfall in most cases and runs the serious risk of wholly undesirable consequences”, such as decisions to dismiss prematurely. Accordingly, the answer to your employee’s argument is that he is not entitled to accrue any annual leave for the period whilst he in on sick leave and therefore you do not need to pay him in lieu.

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