We have been advising members for a long time that the issue of holiday accrued while on long-term sick leave was a "grey area", while we awaited the European Court of Justice’s (ECJ) decision on whether those on long-term sick leave should accrue holiday during their absence. (In the specific case in question, the workers had done no work and been absent throughout the holiday year.)

Unpopular ruling

The ruling, which is unlikely to be popular with most employers, is that employees on long-term sick leave - whether for the whole year or part of it - do continue to accrue their full statutory holiday, which they must be given the opportunity to take. Member States will decide whether this should be taken during the holiday year in question or carried over to another year. But either way, the employee will be entitled to the paid annual leave at some point. On termination of employment, workers are entitled to a payment in lieu of the annual leave they have been unable to take.

The statutory holiday entitlement, currently 4.8 weeks (or 24 days for someone who works a five-day week), increases to 5.6 weeks (28 days) in April 2009. Under the Working Time Regulations, employers cannot currently pay a worker in lieu of untaken holiday other than on the termination of a contract.

Many employers have kept employees on long-term sick leave, long after they had exhausted their entitlement to sick pay. These workers will now be entitled to receive holiday pay, even though they don’t get sick pay or any other sort of pay and even though they are not doing any actual work from which they might need to take a holiday.

It will be up to each Member State to decide whether annual leave can be taken during a period of sickness. So domestic rules can either prevent the taking of, or receiving payment for, holiday leave while absent on sick leave, or permit this. Member States can also prevent the carry-over of unused holiday into a subsequent holiday year, provided a worker has actually had the opportunity to exercise his/her right to that leave. But a worker who is unable to take leave due to sickness absence - whether absent for the entire year or part of the year - must be allowed to carry over the leave into a subsequent leave year.

If, after a number of years’ absence, the worker resigns or the employer terminates the employment, the ECJ’s decision would also imply that payment should be made in lieu of all the holiday accrued but not taken - presumably paid at the normal salary.

It isn’t clear whether payment in lieu of untaken leave carried over from previous leave years must be paid. The Working Time Regulations suggest that this should be lost, but the ECJ implies that it should not, in which case the regulations will need changing. Public sector workers may be able to rely on the Directive itself to claim compensation for untaken carried-over leave.

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=== If an employee has been off sick for many years, how much should you pay them in lieu of holiday? ===

The European Court of Justice (ECJ) ruled that payment for holidays when off sick must be the same as if the employee were working. Pay must therefore be calculated as if the employee had taken the holiday while fit to attend work. That means they would have any pay increases during that time off added. Member States are likely to set a limit on the number of years that can be carried over; then, provided the employee was given the opportunity to take them - but didn’t - they would lose them. The issue now goes to the House of Lords to apply the ECJ decision and clarification is awaited.