As many clients will be aware, there has been an ongoing dispute in employment law about whether or not workers on long term sick are entitled to holiday pay accrual for the periods they are off work.

Recent court decisions on the issue have been contradictory, with some suggesting that employees should continue to accrue holiday pay, whilst other cases suggesting that where an employee is off for the whole of the holiday year it may be safe for employers not to pay any accrued holiday pay.

The ECJ has now made its decision and it is not good news for employers. It held that employees continue to accrue statutory paid holiday during sick leave even if they are absent for the whole of the holiday year. It held that if they are unable to take their full holiday entitlement in the holiday year due to sickness, then they must be able to carry it over. It also said they must also be paid in lieu of carried over entitlement if they remain off sick until termination. Finally it said that National laws can (but are not obliged to) permit holiday to be taken during sick leave.

The likely result will be additional costs for employers. Practically speaking, it may mean that employers need to manage sickness absence more vigorously if they want to avoid past pay for statutory holiday pay. There are also some difficult problems to grapple with from the Judgment. For example, the ECJ’s ruling only applies to the four weeks holiday entitlement under EU law and not the additional increases that we have seen in April 2008-2009, nor any contractual entitlement to holiday above and beyond the statutory minimum.

At present UK law does not permit the carrying over of the four weeks holiday and is inconsistent with the ECJ decision. It is likely therefore UK legislation will need amending before the decision becomes fully applicable in the UK courts. You will therefore have to watch this space (and the news in general) for an update on this area. It may be best to wait until the House of Lords gives its decision before acting. After the next development employers may need to review terms relating to holiday and sickness entitlement. Employers should be able to state that additional contractual holiday does not continue to accrue during sick leave (albeit note there may be a Disability Discrimination Act risk here). It may also be that contractual sick pay or PHI entitlement can be amended to state that this can count towards holiday pay for the purpose of holiday taken during sickness - and amended to provide that employers can give notice that long term sick employees will have to take accrued holiday entitlement in the last few weeks of any holiday year. It is not entirely clear yet whether or not this will be a way forward and potential clarification could yet be provided by the House of Lords.

As ever it will be a balancing act for employers between the risk of dismissing long term sick employees (risking Unfair Dismissal and/or Disability Discrimination Act claims) and the cost of continuing to keep them on the books and continuing to accrue holiday pay.