In Fraser v St George’s NHS Trust, the employee had lengthy periods of sickness absence for a number of years before she was ultimately dismissed. For the best part of the last two complete leave years before her dismissal, she was off sick and in receipt of no pay. Once her employment ended, her employer paid her for her untaken annual leave accrued in the final leave year (as it was obliged to do under the Working Time Regulations 1998 (WTR)), but nothing in respect of accrued but untaken holiday for the previous two years. Mrs Fraser claimed holiday pay for each of those two years.
The relevant provisions of the Working Time Regulations, which implement the EU Working Time Directive, are as follows:
- Workers have the right to take 5.6 weeks’ paid holiday each leave year.
- The first four weeks' statutory holiday may only be taken in the leave year in respect of which they are due - regulation 13(9). A relevant agreement may provide for the remaining 1.6 weeks' leave to be carried over to the next leave year - regulation 13A(7).
- Statutory holiday entitlement cannot be replaced by a payment in lieu except on termination of employment - regulations 13(9) and 13A(6).
- Workers are entitled to be paid in respect of any period of holiday to which they are entitled at a rate of a week's pay for each week's holiday - regulation 16(1).
- Subject to the employer's right to give counter-notice, a worker may take statutory holiday by giving notice to the employer - regulation 15(1). The notice must be at least twice the length of the period of leave requested - regulation 15(4).
- On termination of employment, where the proportion of statutory holiday taken by the worker in their final leave year is less than the proportion of the leave year that has expired, the employer must make a payment in lieu of the untaken holiday - regulation 14(2).
The Trust accepted that under the WTR, Mrs Fraser had accrued the right to take statutory holiday during the two years in question, but as she had not given notice under regulation 15 to exercise that right, her right to take statutory holiday had extinguished at the end of each leave year under regulation 13(9). The Trust argued that when her right to take the holiday extinguished, so did her right to be paid in respect of that entitlement.
The EAT found that although Mrs Fraser had indeed accrued leave during those two years, she had not triggered the right to be paid for it.
The EAT held that:
- The policy behind the WTR is to safeguard workers' health and welfare by providing that they take annual holiday.
- However, it is not right for workers to receive statutory holiday pay where they have not taken holiday. If they did, they could effectively receive double payment for a period of work. This would create an incentive not to take holiday, which is why regulation 13(9) prohibits a payment in lieu of holiday entitlement during employment.
- The aim of the WTR is to ensure that workers use their statutory holiday entitlement before the end of the applicable leave year. If they do not, they lose their entitlement and cannot be paid in lieu of it. There is no reason why the termination of a worker’s employment should change that position.
- A worker on sick leave has a choice - to take statutory holiday (and be paid in respect of it) while off sick, or to request that the holiday to be deferred.
- Therefore, if Mrs Fraser had wanted to defer taking her statutory holiday until her return to work, she should have notified the Trust of this. As she did not do so, her entitlement to statutory holiday and to corresponding holiday pay lapsed at the end of each leave year by virtue of Regulation 13(9).
- If Mrs Fraser had asked for her holiday to be deferred the Trust might have been obliged to pay her in respect of holiday entitlement not taken in previous years, or to let Mrs Fraser take the accrued leave on her return to work.
Mrs Fraser argued that if she had been obliged to give notice to take holiday or to request it be deferred in order to receive holiday pay, then the Trust had been in breach of contract for failing to inform her of the notice requirement. The EAT rejected this argument, holding that there was no duty in this case on the Trust to advise its employees of their rights under general law.
Whilst it remains clear then, that workers continue to accrue annual leave during periods of sickness, and that they can choose to take such leave whilst they are off sick, this most recent decision has made clear that employees on sick leave cannot claim payment for that holiday if they did not give notice to their employer of their intention to take that leave or request their leave to be deferred.
Employers can therefore lawfully withhold payment for accrued statutory holiday in respect of leave years prior to the year of termination of employment where employees have not given notice to take holiday. The normal “use it or lose it” rule will apply - even for employees on long-term sick. This is so even though it might seem somewhat artificial for employees on long-term sick to request periods of holiday.