When an employee has been unable to take paid annual leave during sickness, how much untaken leave do they have the right to carry over in to a following leave year, or to be paid in lieu at the time of termination of employment if necessary? The EAT judgement in Sood Enterprises Ltd v Healy  UKEAT 0015/12 provides some guidance.
In this case, Mr Healy was unable to take all his annual leave entitlement during the leave year ending 31 December 2010 due to sickness. Mr Healey resigned in June 2011 having not taken any paid annual leave during that leave year. The question was how much untaken annual leave was he entitled to be paid at the time of termination?
The right to paid annual leave is contained in the Working Time Directive 2003/88/EC. Article 7 of the Directive provides that “every worker is entitled to paid annual leave of at least four weeks” and “the minimum period of annual leave may not be replaced by an allowance in lieu, except when the employment relationship is terminated.”
Court of Justice of the European Union (CJEU) case law has established that when an employee is unable to take statutory annual leave under the Directive by the end of the leave year in question due to illness, they are entitled to carry that untaken leave forward into a following leave year and take it when they return to work, or have it paid in lieu if their employment ends in the meantime. The employee has this right without having to make a formal request for the leave to be carried over.
In the UK the Working Time Regulations 1998 implement the Directive. Regulation 13 provides for entitlement to “four weeks’ annual leave in each leave year.” Subsection 9 of Regular 13 states that annual leave “may only be taken in the leave year in respect of which it is due, and it may not be replaced by a payment in lieu except where the worker’s employment is terminated.”
Regulation 13A gives a right to an additional 1.6 weeks’ annual leave, “subject to a maximum of 28 days”. Like Regulation 13, the additional 1.6 weeks’ leave “may not be replaced by a payment in lieu except where the worker’s employment is terminated”. Except that under subsection 7 of Regulation 13A “a relevant agreement may provide for any leave to which a worker is entitled under this regulation [i.e. the additional 1.6 weeks] to be carried forward into the leave year immediately following the leave year in respect of which it is due.”
Regulation 26A provides that where there is a relevant agreement in place that provides for an additional 1.6 weeks’ paid annual leave entitlement over and above the 4 weeks required by Regulation 13, this additional leave “may not be replaced by a payment in lieu except in relation to a worker whose employment is terminated; and may not be carried forward into a leave year other than that which immediately follows the leave year in respect of which the leave is due”.
In the opinion of the EAT judge in the Sood case, although Regulation 13 states that statutory paid annual leave can be taken only in the leave year in respect of which it is due, this has been construed so as to allow a worker who was prevented from taking their leave by illness to carry leave forward. If he or she does not return to work due to illness they are then entitled to holiday pay in respect of leave which has accrued.
However, Regulations 13A and 26A read differently. These Regulations specifically mention the carrying forward of untaken additional leave only by agreement and that additional leave may not be a carried forward into a leave year other than that which immediately follows the leave year in respect of which the leave is due.
Therefore, the conclusion of the EAT judge was that the two leave years require to be considered separately, as there were no findings in fact that there was any relevant agreement between the parties about the carrying forward of any additional leave accrued during 2010 into the 2011 leave year.
In the leave year 2011, Mr Healy asked for his holiday pay on termination of his employment. He was entitled to 4 weeks’ leave (Regulation 13) + 1.6 weeks’ leave (Regulation 13A), with a pro rata reduction in respect of his leaving in the middle of the year. For the leave year 2010, Mr Healy was entitled to be paid in lieu for the balance of his untaken 4 weeks’ leave (Regulation 13) rather than 5.6 weeks’ leave (including Regulation 13A). As the additional 1.6 weeks’ leave under Regulation 13A could not be carried forward except by agreement this additional leave could not be paid in lieu at the time of termination in the following leave year.
The EAT judge also considered that CJEU case law meant that the UK Regulations implementing the Directive “should be read down so as to apply not only to emanations of the state but also to a private company”. Therefore, in this case the employer could not argue that the CJEU case law only applied to emanations of the state (e.g. local authorities, NHS hospital trusts, etc.); it applied equally to private companies like Sood Enterprises Ltd.
Whether Sood Enterprises Ltd will appeal is yet unkown. Therefore it may take other cases to explore in more depth whether annual leave accrued under Regulation 13A but which cannot be taken due to illness should be allowed to be carried forward and taken in a following leave year anyway, or paid in lieu at the time of termination. But that is just my opinion.