(1) KHS AG v Schulte and (2) Fraser v Southwest London St George’s Mental Health Trust (holidays and absence)

19 Jan 2012

The law in this area is in a state of flux that benefits no one and frankly, is rather unacceptable.

The Court of Justice of the European Union (CJEU), formerly known as the European Court of Justice (no, we do not know why it changed its name!) is, it seems, in the process of riding back from its high water decisions in Stringer and Schultz-Hoff.

Those cases decided that employees unable to take holidays during any holiday year due to sickness were entitled to carry that leave into subsequent holiday years.

Employees absent for many years due to sickness were suddenly faced with a potential windfall of a large bank of holiday entitlement when they returned to work or a large payment in lieu of notice when their employment ended.

In its recent decision in KHS AG v Schulte, the CJEU has held that a German law that allowed holidays to be carried over for a maximum period of 15 months was compatible with European Law.

A key part of its ruling is that the maximum carry over period before holiday is lost must be substantially longer than the holiday period in order to be valid.

Our Government is planning to change the Working Time Regulations (WTR), which currently provide that holiday cannot be carried over at all.  A new proposal being considered is that employees should be allowed to carry the basic 4 week entitlement over into the following leave year.

We suspect that, in the light of the Schulte case, a longer carry over period of at least 15 months and, more likely, 18 months, is desirable to minimise the risk of our law being incompatible with European Law.

For the record, the Government is also proposing to give employers the right to prevent employees carrying over the 1.6 weeks additional leave (the difference between the initial 4 weeks statutory holiday entitlement and the current 5.8 weeks, i.e. 28 days for a full time 5 day a week employee).

In the short term, the decision of the Employment Appeal Tribunal (EAT) in Fraser v Southwest London St George's Mental Health Trust is helpful for employers.  Regulation 15 of the WTR provides that employees must formally request holiday before they are entitled to take it and to be paid for it.

In the Fraser case, an employee who had been ill for a number of years lost her entitlement to be paid in lieu of holiday pay on the termination of her employment.  She had failed to formally request holiday in some years while she had been ill and the "use it or lose it" maxim applied.

The EAT also decided that the employer was not under a duty to tell the employee that unless she formally requested holiday she would lose the right to carry it over into subsequent years.