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Holidays and Sickness and Absence

In this month’s Employment News we look at two decisions that deal with managing holidays and sickness absence; the impact on breaching contractual procedures; and whether TUPE applies to companies in administration.

Holidays and Sickness and Absence

In the case of Fraser v South West London St George’s Mental Health Trust, the Employment Appeal Tribunal considered whether workers have the right to holiday pay under the Working Time Regulations regardless of whether they take or give notice to take holiday.

In this case, Mrs Fraser, a nurse, went on longterm sick leave and did not return to work before her dismissal in October 2008. At the termination of her employment, Mrs Fraser’s employer paid her in lieu of her final year’s statutory holiday entitlement. However, it did not make a payment in lieu for the previous two leave years that she was off sick. Mrs Fraser brought a claim in the Employment Tribunal.

The Trust argued that whilst it had accepted that Mrs Fraser had accrued the right to take statutory holiday, it was of the view that under the Working Time Regulations she had to give notice to exercise that right. The Trust argued that she had not given such notice and therefore she lost her entitlement to the holiday pay.

The Employment Tribunal accepted the Trust’s arguments. The case was appealed to the Employment Tribunal and the Employment Appeal Tribunal agreed with the Tribunal and rejected Mrs Fraser’s argument that she should be entitled to the holiday pay for the previous two leave years. The Employment Appeal Tribunal held that employees are only entitled to statutory holiday pay if they take their statutory holiday or give notice to their employer that they wish to take such holiday. As Mrs Fraser had not made any such request her statutory holiday entitlement was lost at the end of each leave year.

A similar issue was addressed by the Court of Justice in the European Case of KHS AG v Schulte: The question here was whether the European Directive requires workers on longterm sick leave to accrue and carry over statutory holiday entitlement indefinitely. In this case, the Advocate General took the view that allowing workers to take annual leave several years after it had accrued would not achieve the Directive’s purpose of enabling the workers to recuperate from the effects and stresses of the relevant leave year.

Its decision suggests that there should be some limits on the ability of long-term sick employees to carry forward such accrued holiday on the basis that allowing the worker to take accrued leave several years after the leave year to which it related would not achieve the Working Time Directive’s purpose of enabling the worker to recuperate from the effects and stresses of that year.

This still leaves some uncertainty because the Working Time Regulations expressly state that annual leave cannot be carried forward from one year to the next.

In view of the continuing uncertainty, the best approach for employers to take in respect of the ongoing accrual of leave by longterm absenteeism is to amend policies to make it clear that entitlement to holiday could be lost if it is not taken in the holiday year it is accrued.

As part of its modern work place consultation, the Government has indicated that it is considering amending the Working Time Regulations to provide that where a worker has been unable to take their annual leave due to sickness absence, and it is not possible to reschedule the leave in the current leave year, they should be able to carry the leave over into the following leave year. We were involved in this consultation.

Failure to follow contractual dismissal procedures – does it matter?

The case of Edwards –v- Chesterfield Royal Hospital NHS Foundation Trust held that the scope of an employee’s claim for damages based on breach of contractual disciplinary procedures could extend to a period up to the employee’s retirement.

Mr Edwards was a consultant trauma and orthopaedic surgeon. He was summarily dismissed by the Trust in February 2006 for gross professional and personal misconduct following a disciplinary hearing. He has since been unable to obtain permanent employment in the NHS.

He brought a claim for damages in the High Court, arguing that the disciplinary hearing was conducted in breach of the contractual disciplinary procedure; that the defect in the procedure led to a finding of misconduct; that the misconduct finding caused his inability to find permanent NHS employment following his dismissal; and that the Trust’s breach of contract caused him to suffer a loss in excess of over £4,000,000.

The High Court held that any damages should be limited to loss of earnings in respect of the period during which Mr Edwards would have remained employed had the contractual disciplinary procedure been followed, together with payment in lieu of notice of the contractual notice period.

The Court of Appeal, however, has decided in principle that an employee who suffers damage as a result of being dismissed following disciplinary proceedings conducted in breach of contract can recover damages in respect of any losses that he has suffered. Such an award of damages will, however, depend on an employee being able to prove if the correct contractual procedure had been followed, he would not have been dismissed.

The Trust appealed the decision to the Supreme Court.

By a majority, of 4 to 3 the Supreme Court rejected these claims. It was held that it was not open to an employee to seek contractual damages for the manner of dismissal even though express terms of contract were relied upon.

The Supreme Court held that Parliament had provided a specific statutory regime for redress with tight time limits and a financial cap on damages: namely unfair dismissal. It would therefore be wrong in principle for the Courts to allow a claim based on express (or implied) terms of the contract, which would undermine that regime.

This decision is a welcome relief for those employers, particularly those in the public sector who have to deal with cumbersome disciplinary procedures.

Does TUPE apply to Companies in Administration?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees specifically when a business is sold or the services are transferred to another entity. The effect of TUPE is that the contracts of employment (Regulation 4) automatically transfer to the new entity, together with any associated liabilities (Regulation 7). However, Regulations 4 and 7 of TUPE can be modified, or even disapplied entirely, when the business or undertaking involved becomes insolvent. The types of modifications depend on the insolvency proceedings that the business is undergoing.

The case of OTG Limited vBarker & Others provided some clarity as to when TUPE will apply in insolvency proceedings where the insolvency proceedings are terminal, i.e. where the transferor is subject to bankruptcy or analogous liquidation proceedings. In this situation, the employees’ contracts of employment do not automatically transfer to the buyer. The employees do not have protection against detrimental variation of their contracts or against unfair dismissal by reason of the transfer.

Where the company is subject to administration that has been commenced with a view to rescuing the business, e.g. prepack administration, employees’ contracts of employment will transfer. This clearly is not a welcome decision for administrators and/or buyers as this will undoubtedly impact on price and increased the exposure to risk.

In the very recent case of Key2Law (Surrey) LLP v De’Antiquis the Court of Appeal has held that companies in administration are not exempted from TUPE.

The Court of Appeal has now endorsed the EAT’s analysis in the Barker case referred to above.

In the News

The Government published its response to the ‘Resolving Workplace Disputes’ consultation on 23 November 2011, following on from Vince Cable’s speech earlier on the same day about proposed employment law reforms.

There is some common ground between Dr Cable’s speech and the Government response. However, the Government response contained some important new proposals not covered by Dr Cable. Employers need to be aware of what’s coming and so we summarise the key points below.


The Government intends to make mediation central to the dispute resolution process, which it thinks is not understood or trusted as widely as it should be.

It proposes to do this:

  • by exploring how businesses that use mediation successfully could share their expertise with smaller businesses in the same sectors; and
  • by putting in place a pilot regional mediation network, which would provide mediation training for a number of representatives from small and medium enterprises.

Early Conciliation

Claims will need to be lodged with ACAS before they are lodged with the Employment Tribunal. The final rules of how this process will work will need careful consideration, but the Government suggests that a ‘stop-the-clock’ mechanism will operate in certain circumstances, so that precious time before the limitation date is not lost. One suggestion is that employees would have one month after ACAS had certified that early conciliation has been completed to submit claims to the Employment Tribunal.

Modernising Tribunals

In addition to the review of the Employment Tribunal Rules that Mr Justice Underhill will undertake, the Government has announced the following:

  • Employment Judges will have the power to order deposit orders of up to £1,000 and costs awards of up to £20,000;
  • witness statements will be taken as read in Employment Tribunals, which the Government thinks will cut down the time of hearings taken up by witnesses reading their witness statements out loud;
  • Employment Judges will sit alone for unfair dismissal hearings in the Employment Tribunal, unless the Employment Judge decides that there are reasons why lay members should sit with him or her;
  • lay members will be removed in the Employment Appeal Tribunal and the constitution will be amended accordingly. The rationale for this is that appeals to the Employment Appeal Tribunal are on points of law alone, which laymembers are not qualified to comment on;
  • the normal practice of statefunded expenses for witnesses will end. Parties may be directed to bear their witnesses’ costs and the losing party may be directed to cover the expenses of the other party’s witnesses.

Mr Justice Underhill will also consider as part of his review whether judicial time could be used more effectively by introducing legal officers to deal with more straightforward interim applications and general administration.

Financial Penalties

Employment Judges will be given discretionary power to consider imposing penalties on employers found to have breached employment rights. These penalties will be in addition to any remedy due to the employee and will be payable to the Exchequer. They will be calculated according to the value of the employee’s remedy, subject to a minimum threshold of £100 and an upper threshold of £5,000. The penalty will be reduced by 50% if payment is made within 21 days.

Increase in Compensation Limits

From 1 February 2012, the compensatory award for unfair dismissal increases from £68,400 to £72,300.

The new maximum for a week’s pay increases from £400 to £430. This will be applied to calculating redundancy payments for employees that are dismissed on the grounds of redundancy from 1 February 2012.

New Statutory Payment Increases from April 2012

Statutory Maternity Pay and Statutory Paternity Pay

The rates will increase from £128.73 to £135.45.

Statutory Sick Pay (SSP)

SSP will increase from £81.60 to £85.85.

Finally, the Employment Team would like to wish all of its readers a seasons greetings and a very prosperous New Year.

If you require any further information in relation to this, then please do not hesitate to contact

Sejal Raja
t: 020 7227 7410


This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.