Employment e-Brief – payment of accrued holiday Pay on termination following long term sickness absence

Thursday 9th September 2010

We have previously addressed the question of accrual of holiday pay during sickness in earlier e-Briefs and also in specific workshop seminars.

We have suggested and discussed ways that employers might deal with the impact of the Stringer decision, whereby employees who are on long term sick continue to accrue holiday pay. In some cases this can result in several years’ worth of accrued holiday pay. This issue has emphasised the need for employers to deal proactively with long term sickness cases.

In the case of Khan v Martin McColl an Employment Tribunal dismissed a claim from a worker who had been on long term sick leave as he had not requested the holiday at any time and was therefore not denied the holiday.

The Tribunal held that the employer had broken the series of deductions by making a payment in lieu of holiday accrued during the last year of employment, thereby rendering the claims for earlier, unused holiday ‘out of time’.

Concentrating on the second of these reasons, we consider this an interesting approach by the Tribunal and one which employers may wish to considering adopting.

The individual in question had been off sick from May 2008 until his resignation in August 2009 – he had an entitlement of four weeks unused holiday from 2008 as well as his accrued and unused holiday from 2009. Non-payment of accrued holiday amounts to an unlawful deduction from wages and can mean that those who are terminated due to long term illness can claim accrued holiday pay going back over several years (if that is how long they have been absent from work). This is because the time limit for the presentation of such a claim runs from the last in a series of wage deductions – it doesn’t matter that the deductions took place over a number of years.

However, what the employer did in this case was to make a payment in lieu of the 2009 accrued holiday and ignore the 2008 holiday. The Tribunal found no unlawful deduction on termination and that the last non-payment (or unlawful deduction) expired at the end of 2008 – ruling the claim ‘out of time’ and unsuccessful.

The case seems to suggest a reasonable approach for employers who feel disinclined to make a payment reflecting a much longer period of accrued and unused holiday than just the current holiday year.

The other basis for rejection was that the employee did not request his holiday during the period of his employment and so, the employer could not be said to have denied him his right to take the holiday.

These are two worthy approaches which we are happy to discuss with employers wishing to tackle this issue. For further help and guidance, contact a member of the employment team.