Sickness and Holidays
In this month’s E News we focus on tricky holiday issues. With the holiday season firmly upon businesses, we revisit some of the issues that businesses face when dealing with holiday and holiday pay.
Sickness and Holidays
What happens if an employee falls sick during their holiday? Are they entitled to reschedule their holiday?
The European Court of Justice (ECJ) held that a worker who becomes sick during a period of pre-arranged statutory holiday should have the right to reschedule the holiday to a later date. Furthermore, the ECJ has held that if the worker remains sick until the end of the relevant leave year, then they should be allowed to reschedule the holiday to the next leave year.
Whilst this is an ECJ decision, workers in Great Britain are not necessarily entitled to enforce these rights. However, two recent cases in the Employment Appeal Tribunal have established that a worker’s holiday entitlement under the Working Time Regulations can carry over to the next leave year if he/she has fallen ill during pre-arranged holiday. The options for employers where an employee has been affected by sickness or injury during annual leave are as follows:-
- Reinstate the worker’s holiday entitlement with the days that the employee was unwell and allow that holiday to be carried over to the next leave year if necessary.
- Refuse to allow the worker to reschedule their holiday on the basis that the Working Time Regulations do not apply to them, however, it is our view that in these circumstances, an Employment Tribunal is likely to find that the employer is in breach of the Working Time Regulations.
- Allow the rescheduled holiday in some circumstances, while taking steps to protect itself against this policy being abused.
The employer might consider the following to prevent such abuse:
- Ask for evidence when the employee becomes sick during annual leave.
- Where contractual sick pay is provided to employees, limit the payment of contractual sick leave until medical evidence is provided. However, in doing so this may require an amendment to the contract of employment.
Should holiday pay include commission, overtime payments and other allowances?
Recent cases before the ECJ have held that holiday pay must include:
- Payments “intrinsically linked” to the performance of a task which the worker is required to carry out under his contract of employment.
- Payments which relate to the professional and personal status of the worker.
Therefore, in light of this, it is likely that where commission is paid to an employee under his contract of employment, i.e. it is “intrinsically linked” to the performance of tasks under the contract, then commission must be included to calculate holiday pay. This clearly is going to cause employers difficulties in calculating the amount of pay an employee is entitled to whilst on annual leave. The ECJ has held that the calculation is left up to the national courts to determine and it must be based on average commission earned over a reference period which is considered to be appropriate.
In considering whether commission or overtime should be paid and included as part of holiday, what reference period should be used for averaging pay?
The Employment Rights Act 1996 uses the reference period as the last 12 working weeks where a reference period is required. The ECJ, however, has suggested 12 months as an appropriate reference period. However, it is more likely that the Employment Tribunal would allow for a 12 week reference period which is set out in the Employment Rights Act.
In relation to overtime, it is likely that where overtime is intrinsically linked to the performance of the task, overtime payments may well be included to calculate holiday pay. However, there are three current cases, which are being appealed in the Employment Appeal Tribunal on which a decision is awaited. A key area for argument in the appeal is whether a line should be drawn as to when overtime is included. Watch this space for further developments on the calculation of overtime and commission payments as holiday pay. However, employers should start monitoring overtime and varying rotas where necessary, review the contract of employment and policies relating to annual leave, which may also provide guidance on the payment of commission.
Failure to include overtime in calculations could result in employees bringing claims for breach of contract, unlawful deduction of wages under Employment Rights Act 1996 and Working Time Regulations. Further, employees may be entitled to backdated holiday pay going back 6 years.
If you would like any further assistance in relation to this article, then please contact Sejal Raja.
020 7227 7410