Regulation 13(9) of the WTR 1998 provides that a worker’s annual leave entitlement must be taken in the leave year in which it is due and cannot be replaced by a payment in lieu except on termination of employment.
However, in Pereda v Madrid Movilidad SA  IRLR 959, the ECJ held that workers who do not wish to take their holiday entitlement during a period of sick leave must be allowed to take that leave at a different time, even if this means carrying it over into the next leave year.
Following Pereda, in NHS Leeds v Larner  IRLR 825 the Court of Appeal held that, in order to interpret the WTR 1998 in line with the Directive, regulation 13(9) should be read as including the words in bold below:
“Leave to which a worker is entitled under this regulation may be taken in instalments, but –
(a) it may only be taken in the leave year in respect of which it is due, save where the worker was unable or unwilling to take it because he was on sick leave and as a consequence did not exercise his right to annual leave”.
The court also suggested that words should be added to regulation 14 as follows:
“(5) Where a worker’s employment is terminated and on the termination date he remains entitled to leave in respect of any previous leave year which carried over under regulation 13(9)(a) because of sick leave, the employer shall make him a payment in lieu equal to the sum due under regulation 16 for the period of untaken leave. ”
Mr King worked for The Sash Window Workshop Ltd (SWW) as a commission-only salesman for 13 years. He received no salary, and was never paid for any holidays or periods of sickness absence. After nine years, SWW offered Mr King an employment contract under which he would be entitled to paid annual leave, but Mr King refused. SWW terminated his contract when he reached 65 and Mr King subsequently brought claims for age discrimination and unpaid holiday pay in the employment tribunal. Mr King’s case was that he had not taken his full annual leave entitlement each year because it would have been unpaid.
An employment tribunal awarded Mr King holiday pay in respect of:
- Leave accrued but untaken up to the date of termination in the current leave year.
- Leave requested and taken in previous years, claimed as a series of unlawful deductions from wages.
- Leave accrued but untaken in previous years.
His age discrimination claim was successful and was not appealed.
The EAT upheld SWW’s appeal against the tribunal’s decision to award Mr King pay in respect of leave accrued but untaken in previous years. It held that the tribunal had made no findings of fact that Mr King had been prevented by reasons beyond his control from taking annual leave, as was required by the words written into regulations 13(9) and 14 by the Court of Appeal in Larner . Further, the EAT considered that, since Mr King had worked during the periods he might have taken the annual leave, he had not lost out financially. For full details of the employment tribunal and EAT decisions in the case.
Reference to the ECJ
Mr King appealed to the Court of Appeal, which referred the following questions to the ECJ:
- Is regulation 13 of the WTR 1998 consistent with Article 7 of the Directive, given that a worker has to take unpaid leave before they can establish whether they are entitled to be paid for that leave?
- If a worker does not take some of their annual leave entitlement because their employer refuses to pay them during annual leave, can the worker claim that they were prevented from exercising their right to paid leave, so that the right to leave carries over until the worker has the opportunity to exercise it?
- If the right does carry over, does it do so indefinitely or is there a limited period during which the right must be exercised in the same way as workers who are unable to exercise their right to take leave because of sickness ?
- If there is no statutory or contractual provision specifying a carry-over period, should the court impose a limit in order to ensure that the purpose of Article 7 is not distorted?
- If so, is a period of 18 months following the end of the holiday year in which the leave accrued compatible with Article 7?
Advocate General Tanchev gave an opinion that supported Mr King’s arguments on all the questions referred.
In Mr King’s case, the Advocate General took the view that restricting the period he could carry over annual leave to 18 months following the end of the holiday year in which it was accrued would not be compatible with Article 7.
This case only deals with the condition where employees have not taken annual leave because they have been led to believe it will not be paid. Where workers have already taken leave but not been paid for it, then the standard restrictions would continue apply to any deduction from wages claims for the unpaid holiday pay: the claim must be brought within three months of the deduction or the last in a series of deductions, and a gap of more than three months between deductions will break a series.
It would be for the UK courts to decide whether the fact that Mr King was offered and turned down an employment contract should restrict his right to claim for holiday pay from that date. It is possible that this may depend on whether there was any disincentive to accept the employment contract – for example, a drop in take-home pay, or other terms and conditions that were less favourable than those he already enjoyed.