Workers on long-term sick leave are not entitled to paid holiday, according to a Court of Appeal ruling. A 2002 EAT decision, Kigass Aero, ruled that under the Working Time Regulations 1998 workers on long-term sick leave are entitled to be paid for four weeks’ annual leave. But the Court of Appeal in Commissioners of the Inland Revenue v Ainsworth and Others has ruled that Kigass Aero is wrong. The ruling clarifies that annual leave means a release from an obligation to work, so a worker who is absent for a substantial period as a result of a serious illness cannot be taking “leave”, as they are under no obligation to work.

Under the Working Time Regulations 1998 (WT Regs), every worker is entitled to 4 weeks' annual leave. A worker cannot accept a payment in lieu of actually taking the leave but on termination a worker is entitled to be paid for any holiday which he or she accrued but did not take. Under the WT Regs this is restricted to leave accrued but not taken during the current holiday year.

Several decisions by the EAT have expanded upon these rights and created added costs for employers. First, the EAT decided that a worker was entitled to paid annual leave even if he or she was on long term sick leave, regardless of whether they had been at work at any time during the leave year. So if they had been off on unpaid sick leave for twelve months they would nevertheless be entitled to receive four weeks' pay representing paid annual leave.

Secondly, the EAT allowed workers to claim for back dated holiday pay as an unlawful deductions of wages under the Employment Rights Act 1996. The effect of this was that they could bring claims for unpaid holiday right back until 1 October 1998, when the WT Regs came into force.

In a decision for which many employers will be thankful, the Court of Appeal has overturned both of these decisions. Workers will no longer accrue holiday pay if they are off on long term sick leave and claims for holiday pay on termination are now limited to holiday accrued during the current leave year.

This approach is in line with the health and safety rational behind the WT Regs, which does not apply if a worker is off on long term sick leave. The Court of Appeal pointed out that if a worker has ceased to be entitled to any form of sick pay payment in respect of holiday is simply a windfall.

In respect of claims made for unpaid holiday after termination, the Court of Appeal said that workers cannot frame claims for holiday pay as unlawful deductions from wages using the Employment Rights Act. The only way to bring a claim is to use the WT Regs and workers are limited to payments in respect of holiday accrued during the leave year in question.