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Holiday pay

The Court of Justice of the European Union (“CJEU”) has recently provided an interesting ruling in the case of KHS AG v Schulte in relation to the carrying over of holiday pay when sick.

In this case an employee was absent from work through sickness from 2002 to 2008.   He claimed his contractual leave entitlement for the 3 holiday years from 2006 to 2008, the point at which his employment was terminated.  A German court ruled that he was entitled to his accrued holiday, though restricted the accrual to the statutory minimum leave (rather than his contractual entitlement). It also expressed an Opinion that, where leave is carried over, there should be a time limit of 18 months during which time the leave should be taken.  The employer appealed the decision and the Court referred the case to the CJEU for a ruling.  

The CJEU stated that although a worker may be unable to take their annual leave whilst on sick leave, allowing them to take the accrued leave years later was not in accordance with the Working Time Directive’s (“WTD”) intention.  The CJEU differentiated between when a holiday is for the purpose of allowing the worker to be able to enjoy a period of paid rest which is needed as a result of their activities at work, and when after a period of time the holiday ceases to have this purpose but is to allow a worker to benefit from a ‘period of relaxation and leisure’. The CJEU found that the intention of the WTD was not to allow holidays falling into the latter category to be carried over into future periods.  Therefore, where an employee is unfit for work for several consecutive years, the CJEU ruled that, whilst statutory leave can be carried over, the accrued and untaken leave will be lost if it is not taken 15 months after the end of the relevant leave year.  

This ruling is important for the UK as it:  

  • introduces the concept of employers having to carry over statutory leave; and
  • caps this ‘carry over period’ at 15 months in circumstances in which an employee has been unfit for work for several consecutive years.

It is unlikely the Government will seek to amend the Working Time Regulations in accordance with this ruling. Nevertheless, it is clear that employers are not in a position to be able to refuse the carry-over of leave unless it is excessive and beyond the cap of 15 months where an employee has been unfit for work for several years.