Employment Pensions & Benefits Communiqué

Inland Revenue v. Ainsworth and others

This recent case dealt with the tricky issue of annual leave during sick leave. It could also have implications for other aspects of the employment relationship.

Q: Should an individual who is off on long-term sick leave and who has run out of sick pay still be entitled to receive holiday pay for their statutory four week working time holiday entitlement?

A: If you answered "yes", you would have been correct. We say "would have" because the answer is now "no" following the Appeal Court's decision last month in the case of Inland Revenue v. Ainsworth and others.

Long term sick leave and annual leave

Following the decision in Ainsworth, an individual will not be entitled to their four week paid annual leave entitlement under the Working Time Regulations 1998 ('the Regulations') if they are still off sick and have run out of contractual sick pay at the time they wish to take their holiday. The Court felt that paid holidays for someone in this situation would be a "windfall" which should not be allowed.

The Ainsworth case does not deal with the issue of paid holidays accruing during long term sick leave, rather it deals with whether or not an individual is entitled to paid holidays under the Regulations ("statutory holidays") and whether s/he can take those holidays. In the first year of employment holidays accrue monthly in advance. However, in all subsequent years, an individual is entitled to their full four weeks statutory holiday from day one of the holiday year. It is therefore possible that an individual who has been off sick for the majority of the year could return to work towards the end of the holiday leave year and subsequently take their four weeks of statutory leave.

If you wish to prevent such a scenario, you should ensure you set out clearly in your contracts of employment details of when holidays can be taken and how many days/weeks can be taken at any one time. For example, you may wish to set out that no more than one week's holiday can be taken at any one time, or that two weeks of leave must be taken in each of the periods January to June, and July to December (assuming a holiday year of January to December).

The ability of an individual to take four weeks of statutory leave in one go would also depend on their having given the correct amount of notice. This will either be a period set out in your contracts of employment, or, in the absence of a specific contractual provision, will be twice the length of the leave period requested e.g. if four weeks leave is requested, the individual must give you eight weeks notice. If you wish to object to an individual's request, you must in turn give notice equivalent to the period of leave requested, which, in this example would be four weeks.

If an individual's employment is terminated at a time when s/he is off on long term sick leave and has run out of contractual sick pay, Ainsworth suggests s/he will not be entitled to payment in lieu of holidays in proportion to the length of the leave year which has passed. This is because, at the time of termination, they were not entitled to take paid statutory leave, so they cannot be entitled to pay in lieu of that leave.

Ainsworth certainly provides a prompt for a review of your employment contracts to ensure the effective management of holiday requests.

While the Ainsworth decision does not directly deal with other areas of the law, how is it likely to impact on other employee entitlements?

Ordinary maternity leave (OML)

During OML a woman's contract continues as normal (except in relation to pay) and her contractual and statutory holidays accrue as they would have been had she not taken OML. She would need to return to work in order to take annual leave. Ainsworth does not change this.

Additional maternity leave (AML)

During AML only parts of a woman's contract continue and this does not include the right to accrual of contractual holidays. Prior to the Ainsworth decision it was believed that the right to annual leave under the Regulations would continue given that this is a statutory right. We do not believe Ainsworth changes this position. A woman's entitlement to statutory holiday will therefore be as it was had she not taken AML. However, in order to take leave, she will need to return to work and may need to cut her AML short by the length of the holidays she wishes to take. Note: the comments made above in relation to notice will apply).

Additional adoption leave (AAL)

As with AML, during AAL only certain parts of an individual's contract will continue and this will not include the accrual of contractual holidays. However, as with AML, an individual's entitlement to his/her four week statutory holiday remains as normal, but s/he will need to return to work before taking this holiday. Again, the notice comments above will apply.

Disability Discrimination

There is a risk that applying the Ainsworth decision to a disabled person, or someone you suspect might be a disabled person could amount to discrimination. Where you suspect a disability-related illness is the cause of the long term sick leave, you should take case specific advice.

What does this all mean?

The most important thing to take on board from the Ainsworth decision is the importance of an effective absence management procedure. A proactive approach to absence management should help to minimise long term absenteeism, which in turn should not only minimise the need for you to deal with the issues above (!), but bring with it benefits for your organisation and its employees alike.

Should you require further advice on effective absence management or any other aspect of the information set out above, please contact:

Giles Woolfson
0141 303 2373
[email protected]

Chris Phillips
0131 271 4142
[email protected]

Fiona McLellan
020 7002 8542
[email protected]