Local Government - July 2009
In the case of HM Revenue and Customs
("HRMC") v Stringer, the House of Lords has finally
decided upon a long-running dispute concerning the treatment of
unpaid holiday pay, overturning the previous decision of the Court
of Appeal.
Background
Some employees of HMRC had been
absent from work by reason of long term sick leave. As a
result, none of them had been able to take the paid annual leave to
which they were entitled under the Working Time Regulations
1998 ('WTR') during the year in which it fell
due.
In due course,
the employees were dismissed whilst still on sick
leave. They each sought a payment in lieu of their
untaken annual leave at the time of their dismissal, but this
was refused by HMRC. The employees therefore
pursued a claim for pay in lieu of untaken annual leave in the
Employment Tribunal, claiming that they were entitled to such a
payment both:
- under regulations 13 and 14 the
WTR (which Regulations cover entitlement to annual leave and
compensation in lieu of untaken annual leave); and
- as an unauthorised deduction from their
wages under sections 13 and 23 of the Employment Rights Act
1996 ('ERA').
The employees succeeded in their Tribunal
claim and those decisions were upheld in
the Employment Appeal Tribunal (‘EAT’). The employer
subsequently appealed to the Court of Appeal,
which held that employees who had been absent from work on
long term sick leave were not entitled to claim holiday pay
under regulations 13 and 14 the WTR for any
years when they had not actually attended for work. The employees
appealed to the House of Lords (‘HLs’). The HLs
referred a number of questions to the European Court
of Justice ('ECJ').
The ECJ held that employees were in
fact entitled to compensation in lieu of any lost annual leave even
if they had not been at work during the relevant holiday year.
Given the ECJ's ruling, the HMRC accepted before the
HLs that they were obliged by regulation 14 WTR to pay
the employees the sum claimed. However, HMRC submitted
that the employees had not been entitled to make a
claim to the Tribunal under the ERA for unauthorised
deductions from wages, arguing that holiday
pay under regulation 14 WTR did not fall within the
definition of 'wages' in section 27 of the ERA. Whilst at
first sight it might appear odd that the HMRC would continue to
contest this second issue, there was a significant practical matter
at stake:
- section 23 of the ERA permits an
employee to make a claim in respect of a "series" of
deductions of which he complained if he or she acts within
three months of the last deduction in the series;
- by contrast, the WTR does
not contain an equivalent provision extending the 3 month
time-limit where there has been a series of deductions: as such, an
employee must make a claim within 3 months of each separate
deduction in the series of deductions or else risk losing his/her
entitlement to make a claim.
Decision
The House of Lords held that a claim for
(i) unpaid holiday under regulations 13 and 16 of the WTR or (ii) a
payment on termination under regulation 14 of the WTR can be
pursued as unauthorised deduction claims as well as under the WTR.
This means that an employee can take advantage of the more
generous time limits which apply to unlawful deduction
claims: as long as a claim for a series of unlawful
deductions from wages is brought within three months of the
last in the series of deductions, the employee can make a claim
going back more than three months (provided that the
underpayments form part of a series).
Comments
This decision will raise a number of concerns
for employers including:
(1) employers will now
be liable to pay statutory holiday pay to employees, who are
long term and have used up their sick pay entitlement;
(2) employees will be able
to rely on the ERA when pursuing such claims which has the
practical benefit of allowing them to delay making a claim to
an ET until 3 months after the last in the series of deductions
from wages has been made;
(3) It appears; although
this point has not been expressly decide on, that employees
will not be able to carry over any statutory
holiday entitlement which they have accrued whilst they
were off sick, into a new annual leave year. (This is because
regulation 13(9) of the WTR expressly states this).
However, the His did not rule on how this would work in
practice. For example would an
employee actually have to take, or at least seek to take,
statutory holiday during the leave year where they accrue statutory
holiday whilst of sick in order to be owed holiday pay under
regulation 16 of the WTR? Or would the mere fact
that they had accrued statutory holiday during a period of sickness
be sufficient for them to later assert a right to claim holiday
pay. (There are conflicting decisions from the EAT on this point,
List Design and Kinas).
Regrettably, not only is it likely
that this decision will be costly for employers,
but it also likely that it will
not be the last word from the Courts on the
issue of statutory holiday entitlement and long term
sickness.
Mark Landon is a Partner in the London team,
mark.landon@weightmans.com.