Workers who are unable to take holiday due to sickness or maternity absence are entitled to carry over that untaken holiday into the next holiday year.
A recent case has explored how this legal principle might be extended further. We consider how employers should respond.
The Sash Window Workshop Ltd v King
Mr King worked for Sash Window as a commission only sales man from for 13 years until 6 October 2012. He was not paid by Sash Windows when he took holiday or sick leave, although his requests for holiday were never refused by the company. Mr King's claimed he would have taken more holiday had he been paid for holiday.
When his employment was terminated by Sash Window, Mr King brought an unlawful deduction of wages claim for unpaid holiday pay dating back to the start of his employment in 1999. An employment tribunal awarded him holiday pay under 3 headings:
Holiday pay 1 - accrued but untaken holiday for the current holiday year at the date of his termination
Holiday pay 2 - holiday which Mr King had taken in previous years
Holiday pay 3 - pay in lieu of untaken holiday accrued in previous years
As regards 'Holiday pay 3', the employment tribunal relied on the Court of Appeal decision in NHS Leeds v Larner, which held that where a worker is prevented from taking their statutory holiday due to sickness, and the holiday is carried over to the next holiday year, that accrued untaken leave should be paid to the worker in lieu upon termination irrespective of whether a request for that leave was made. The employment tribunal found no reason why the same principle should not be applied to other circumstances where a worker has been prevented from taking annual leave for reasons beyond their control, for example where their holiday request is refused.
Sash Window appealed the finding on 'Holiday pay 3' on the basis that there was no evidence to suggest that Mr King had been prevented from taking holiday and could have requested to take the leave at any time he wanted. The Employment Appeal Tribunal (EAT) allowed this appeal.
The EAT found that the employment tribunal had assumed, rather than make a finding based on fact, that Mr King had been prevented from taking holiday for reasons beyond his control.
In addition, the EAT considered that the claim for 'Holiday pay 3' should not have been brought as a claim for unlawful deduction of wages; the claim was for unpaid holiday pay under the Working Time Regulations 1998. Therefore, compensation awarded for unpaid holiday pay would be for 'such sum as was just and equitable'. This compensation could not be regarded as unpaid wages as Mr King had already been paid for the work he had done during this period; had Mr King been awarded compensation for unpaid wages, this would have resulted in a 'financial windfall' and double recovery. What Mr King lost was not his wages, but the health and welfare benefits of taking holiday.
What does this mean for employers?
What this case illustrates is that, where a worker is genuinely prevented from taking holiday for reasons beyond their control, the principle in the Larner case may be applied. This would entitle the worker to carry over their accrued holiday into the following holiday year and to be paid in lieu of that holiday should their employment or engagement be terminated.
Employers will gain some relief from the current position that:
- workers are likely to be able to recover less than two years of carried over accrued holiday pay. The European Court of Justice held in KHS v Schulte that holiday entitlement could be forfeited if left untaken within 15 months of the end of the holiday year
- only the untaken element of the statutory entitlement of 4 weeks' paid holiday under the European Working Time Directive may be carried over by a worker ie any contractual entitlement over and above this minimum level may be excluded
Situations where a worker might not be able to take holiday could potentially extend to: the cancellation of a planned holiday due to pressures at work or project deadlines; seasonal fluctuations in demand which need to be met at work; or out-of-work commitments, such as having to look after a sickly parent or child. It would therefore be prudent for employers to:
- implement within their holiday policy a reasonable time limitation of when carried-over holiday should be taken before it is lost by the worker
- monitor the level of holiday its workers are taking to ensure that holiday entitlements are being taken
- take steps to encourage workers to take their statutory entitlement to holiday in each holiday year
- be mindful of this case when calculating any pay in lieu of holiday on termination. Employers should consider each situation on a case by case basis to consider whether an employee was genuinely prevented from taking holiday for reasons beyond their control.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.