House of Lords rules that holiday pay can be accrued by staff off sick

The House of Lords has ruled that employees can accrue holiday pay while on sick leave in the final judgement of the Stringer v HMRC case.

The decision means that workers on long-term sick who are denied holiday pay can pursue a claim to an employment tribunal for unauthorised deduction from wages under the Employment Rights Act 1996.

The long-awaited ruling follows a judgment made by the European Court of Justice (ECJ) in January that said staff are entitled to take all holiday they have accumulated while off sick.

The ECJ held that workers could accrue four weeks' holiday per year throughout any periods of sickness absence and that they must be allowed to take this holiday on their return to work.

In addition the ruling stipulated that employees can accrue statutory holiday pay while off sick, receive payment in lieu of unused holiday entitlement at the end of employment and carry over any unused holiday at the end of the year.

However this ruling did not comply with the UK's existing Working Time Regulations, which prevents employees carrying over holiday entitlement into the following year.

Naomi Feinstein, a partner in the employment team at Lovells, said: "This decision will come as a blow to employers. Generous time limits for unauthorised deduction claims mean businesses could now face substantial holiday pay claims - for example from employees on long term sickness absence, who have not received holiday pay because on the basis of the earlier Court of Appeal decision they were not entitled to it.

"The ECJ ruled in January however that employees on long term sick leave are in fact entitled to accrue holiday during periods of absence.

"These claims for unpaid holiday could conceivably stretch back to the beginning of an employee's period of illness, so could cover several years' holiday entitlement - a potentially huge cost for employers at a time of economic uncertainty."

Mark Serwotka, PCS general secretary said: “This is a victory for common sense. The European Court of Justice confirmed that sick workers cannot be refused paid annual leave if they wish to take it, and nor can employers reduce termination payments on account of sickness. The House of Lords has now made it easier for employees to pursue employers who continue to illegally deny them their rights.”