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||Neutral Citation Number:  EWCA Civ 1034
||Case No: A2/2011/1953
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
THE HON MR JUSTICE BEAN
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MUMMERY
LORD JUSTICE TOMLINSON
MR JUSTICE HENDERSON
|| NHS LEEDS
||- and -
||MRS JANET LARNER
(Transcript of the Handed Down Judgment of
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MR SEAN JONES QC (instructed by Ford & Warren) for the Appellant
MR MICHAEL FORD (instructed by Thompsons Solicitors) for the Respondent
Hearing date: 27th March 2012
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Mummery:
- In what circumstances is a worker, who has not taken paid annual leave in the relevant leave year because of absence from work on long-term sick leave, entitled to a payment in lieu? Not, one might think, a difficult question or one that would take long to answer. The short answer to this case is in the final paragraph of this judgment.
- On this appeal the specific point is whether the Employment Tribunal (the ET) erred in law in holding that the claimant Mrs Janet Larner, whose employment was terminated by NHS Leeds after her prolonged period of sickness absence throughout and beyond the whole of the preceding year, was entitled to be paid in lieu of the annual leave which she had neither taken in that leave year nor requested to carry forward to the following leave year, in which she was dismissed. The answer depends on the interpretation and application of Article 7 of the Working Time Directive, originally 1993/104/EC, now 2003/88/EC (the Directive). The Working Time Regulations 1998 (the 1998 Regulations), which implemented Article 7, must, if it is possible to do so, be interpreted and applied compatibly with it.
- The key facts could not be simpler. The appellant NHS Leeds employed the claimant. She was absent on sick leave for the whole of the leave year 2009/10. During that year she neither took paid annual leave nor did she request NHS Leeds to carry it forward to the next leave year (2010/11). Very early on in that year she was dismissed. NHS Leeds refused to pay her for the leave not taken by her in 2009/10.
- The claimant queried why she had not been paid in lieu. Her case under Article 7 and the 1998 Regulations again could not be simpler: she had the right, without prior request, (a) to carry forward to 2010/11 the paid annual leave accrued, but not taken, during her period of sickness absence in 2009/10 and (b) to be paid, on the termination of her employment in April 2010, in lieu of that untaken leave.
- Contract does not come into her case under Article 7 or into the defence of NHS Leeds. The contractual conditions of employment are part of the narrative, but the contract is subject both to the legislation in Article 7, which has been held to have direct effect as against NHS Leeds, and to the 1998 Regulations.
- Both the ET and the Employment Appeal Tribunal (EAT) found for the claimant. This appeal is from the order of the EAT dated 1 July 2011. It dismissed the appeal by NHS Leeds against the reserved judgment of the ET (Employment Judge Keevash, sitting alone) sent to the parties on 14 December 2010. The ET held that NHS Leeds had made unlawful deductions from the claimant's wages and that it had acted in breach of the 1998 Regulations by not paying her, on the termination of her employment, wages in lieu of the paid annual leave that had accrued while she was on sick leave throughout 2009/10. There was originally an issue about untaken leave in the earlier leave year 2008/09, but that claim was treated in the EAT as withdrawn. It is not a live point on this appeal.
- On 10 October 2011 Elias LJ granted permission to appeal on the grounds that the appeal was arguable and raised a point of some importance.
- Entitlement to paid annual leave and to payment in lieu on termination of employment matter a great deal to employers and workers alike. Both sides need to know where they stand, preferably without having to go to the Court of Appeal, or all the way to Luxembourg, to find out how the law works. The rule of law, in its practical application in the workplace, should ensure that, as far as possible, the legal rules are certain, clear and accessible by the people for whom the rules were made. It does not help them for the courts to complicate the law and to make it even more difficult to work out what it is and what it means in practice.
- We were informed that not all ETs have been taking the same approach to paid annual leave rights on termination of employment after an extended period of absence on sick leave. Both sides hope that this case will produce more consistency.
- From 17 April 2000 NHS Leeds employed the claimant as a clerical officer on a 20-hour week. Her leave year ran from 1 April to 31 March in each year.
- Her conditions of employment did not prevent her from taking paid annual leave during a period of absence on sick leave. They stated that annual leave would accrue during paid and unpaid sick leave, but the combined annual leave must not exceed 20 working days in one year. It was stated that:-
"The carry forward of any annual leave must be for service delivery reasons and may only be authorised by the relevant Director having already been discussed and agreed by your Head of Service. The matter should be discussed before returning to work from sick leave."
- The conditions said nothing about the need for an express request by the employee, either during the period of sick leave or before the end of the leave year, to carry forward to another leave year any untaken entitlement to paid annual leave.
- Guidelines issued in May 2004 advised the staff of NHS Leeds to ensure that they had taken all their annual leave for the year by the end of March and that leave could only be carried into the next year in special circumstances and to apply in writing, if they felt that that applied to them. A later Bulletin (January 2006) stated that annual leave could not be carried into the following year "unless in exceptional circumstances and a written request has been submitted and approved."
- On 5 January 2009 the claimant went on sick leave. She never returned to work. She was later diagnosed with chronic fatigue syndrome (ME) and depression. She had no pre-arranged holiday. She took no holiday whilst off-work sick, being, according to her evidence, "too ill to do so", "never [feeling] well enough" and not even thinking of holidays She was absent throughout the leave year 1 April 2009 to 31 March 2010. During sickness absence she received 6 months' full pay. She then went on to half pay, which ran out in January 2010.
- During the year 2009/10 the claimant made no request to NHS Leeds to take paid annual holiday or to carry forward (or "carry over", or "roll over", as sometimes said) untaken leave into the next year. NHS Leeds asserted that, had the claimant made a request to take paid annual leave after her sick pay ran out in January 2010, it would have been granted. The main case for NHS Leeds is that, as the claimant made no request to take or carry forward leave, her entitlement to it and to payment in lieu lapsed at the end of the leave year. The ET and the EAT should have disallowed her claim for payment in lieu.
- 0n 8 April 2010 NHS Leeds sent a letter to the claimant informing her of the decision to dismiss her with effect from 6 April 2010 on grounds of incapability due to her continuing ill-health. The letter stated that a payment in lieu of notice and any outstanding leave would be made to her. NHS Leeds eventually paid her the correct sum representing the compensation due for the proportion of untaken holiday due for the 2010/11 leave year. The payment did not include any compensation for the untaken paid leave for the 2009/10 leave year.
- The claimant says that the payment in lieu should cover her unexercised entitlement to paid annual leave in the previous year. The basis of her claim to carry forward untaken leave is that Article 7, as interpreted in repeated rulings of the Court of Justice, entitles a worker, who is unable to take paid annual leave because of sickness, to take that untaken leave at another time when the worker is not absent on sick leave, if necessary in a subsequent leave year. Further, the amount of the payment due to the claimant on termination of her employment for untaken paid leave must place her in the same position as if she had exercised the right to take her paid annual leave during her employment.
- NHS Leeds opposes the claim in this, the third round of legal argument, insisting that it was for the claimant to make a request, either to take her paid annual leave during her period of sickness absence, or to carry it forward. She did not make the requisite request. Her entitlement to paid annual leave was lost. Her right to pay in lieu on dismissal was extinguished. The position of NHS Leeds on holiday pay (and payment in lieu) is pithily put: "Use it or lose it." The claimant's response is less punchy, as it depends on quarrying EU jurisprudence for rulings on the interpretation of Article 7. The Court of Justice released another ruling after the hearing of this appeal, while these judgments were still in preparation.
- The 1998 Regulations, as amended, implement the right to paid annual leave originating in Article 7 of the Directive, which provides that:-
"1. Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and /or practice.
2. The minimum period of annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated."
- The Article is celebrated by the Court of Justice as a "particularly important provision of social law from which there can be no derogation." Nothing in it expressly states that a worker, who wants to take paid annual leave or wants to carry it forward to a later leave year, has to make any form of request to the employer in order to secure entitlement. Neither the existence of the Article 7 right nor its exercise are conditional on the making of any request to take the benefit of the entitlement conferred. Where does the suggested requirement of a leave request come from?
- I turn to the 1998 Regulations which deal, in regulation 13(1), with entitlement to four weeks' annual leave in each leave year. That can only be replaced by a payment in lieu where the worker's employment is terminated.
- The length of paid leave was increased in 2007 by the introduction of regulation 13A, which confers an entitlement to additional annual leave in each leave year, subject to a maximum aggregate entitlement of 28 days in each year from April 2009. It is provided in regulation 13A(7) that the additional paid leave may be carried forward by a relevant agreement: -
"A relevant agreement may provide for any leave to which a worker is entitled under this regulation to be carried forward into the leave year immediately following the leave year in respect of which it is due."
- NHS Leeds took no separate point in either the ET or the EAT on the interpretation or application of regulation 13A and the additional 1.6 weeks' annual leave due under regulation 13A. The existence of a "relevant agreement" and what provision was made contractually for leave to be carried forward were therefore not explored in the evidence and the ET made no findings of fact on that topic.
- Regulation 13, to which I revert, does not contain any carry forward provision. Regulation 13(9) deals with entitlement to take leave in instalments:-
"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, and
(b) it may not be replaced by a payment in lieu except where the worker's employment is terminated."
- As pointed out by NHS Leeds, that regulation, on its face, would appear to require leave to be taken in the course of the leave year in respect of which it is due, and not permit untaken leave to be carried forward, so that any leave entitlement not taken by the end of the relevant leave year would be lost.
- The amount of compensation related to entitlement to leave due on termination is calculated in accordance with regulation 14. The court is not involved in the arithmetic of this claim as, subject to a decision on liability, the parties have agreed the calculation.
- Regulation 15(1) deals with the dates on which leave is taken by providing a procedure for giving notice of the days elected for taking leave:-
"A worker may take leave to which he is entitled under regulation 13 [and regulation 13A] on such days as he may elect by giving notice to his employer in accordance with paragraph (3), subject to any requirement imposed on him by his employer under paragraph (2)."
- That regulation does not expressly say that a worker is required to give notice, nor that a worker is only entitled to take leave, if he gives notice.
- Regulation 15(2) provides for an employer's counter-notice requiring the worker to take, or not to take, leave or additional leave on particular days, and (3) and (4) deal with the contents of notices. Regulation 15(5) states that:-
"Any right or obligation under paragraphs (1) to (4) may be varied or excluded by a relevant agreement."
- Regulation 16(1) deals with the rate of payment in respect of periods of leave:-
"A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13 [and regulation 13A], at the rate of a week's pay in respect of each week of leave,"
- Entitlement to payment is, of course, dependent on entitlement to leave: if the claimant's entitlement to 2009/10 paid leave was lost when her relevant leave year expired on 31 March 2010, her entitlement to payment in lieu of that on termination would also be lost.
- Regulation 26A was introduced to deal with entitlement to additional annual leave under a relevant agreement. For the reasons explained below I need say no more about the additional period of paid annual leave.
Article 7: Court of Justice rulings
- Neither counsel appearing on this appeal were previously instructed in the case. They have cited all the relevant rulings of the Court of Justice on the interpretation of Article 7. The drift of their general direction is unmistakable.
- The seminal cases are Stringer v. Revenue & Customs (Case C-520/06) and Schultz-Hoff v. Deutsche Rentenversicherung Bund (Case C-350/06)  ICR 932. The first case was referred to the Court of Justice by the House of Lords for a preliminary ruling. It was heard together with the second case. The Advocate General gave two long opinions. The Court of Justice gave a single judgment.
- In Stringer a worker was on indefinite sick leave and in receipt of sick pay. The employer refused a request for a period of paid annual leave, as it did in the case of other workers who were dismissed in the course of the leave year during which they were on long-term sick leave. The dismissed workers claimed payments under regulation 14 of the 1998 Regulations in lieu of untaken paid annual leave.
- In Schulz-Hoff the worker was on sick leave for a year. His employment then ceased. His request for paid annual leave was refused by the employer. He brought proceedings for payment in lieu of untaken leave. Under German law and under the applicable collective agreement, leave not taken by the end of the leave year, or in a further carry-over period available in certain circumstances, was lost. The employer contended that the entitlement to paid annual leave was extinguished and the right on termination to an allowance in lieu was lost.
- The preliminary rulings of the Court of Justice supported the workers' claims. I have extracted from the Judgment of the Court those general points that are potentially relevant to this case:-
Purpose of annual paid leave
(1) The purpose of paid annual leave guaranteed by EU law is different from the purpose of entitlement to sick leave, which is not governed by EU law. The purpose of the former is to enable a worker to enjoy rest, relaxation and leisure: it is for the protection of health and safety. The purpose of the latter is to enable a worker to recover from illness: -.
No derogation from principle of paid annual leave
(2) Paid annual leave "is a particularly important principle of Community social law from which there can be no derogation." That is borne out by the terms of Article 7(2), which only permit payment in lieu on termination of the employment relationship: -. The right is "granted to every worker, whatever his state of health": 
The "opportunity principle" and its limits
(3) While it is for the Member States to lay down conditions for the exercise and implementation of the right, they must do so "without making the very existence of that right…subject to any preconditions whatsoever":  and .
(4) As a general rule, national legislation and practices may provide that a worker on sick leave is not entitled to take paid annual leave during sick leave, "provided, however, that the worker in question has the opportunity to exercise the right conferred by that Directive during another period": . Equally, national legislation or practices may also allow a worker to take paid annual leave during sick leave: .
(5) National legislation may also provide for the loss of the right to paid annual leave at the end of a leave year or of a carry forward period, "provided, however, that the worker who has lost his right to paid annual leave has actually had the opportunity to exercise the right conferred on him by the Directive": . The "opportunity principle" is relied on by NHS Leeds in its submissions discussed later.
Right of sick workers to carry forward paid annual leave
(6) "It must therefore be held that a worker, who ….is on sick leave for the whole year and beyond the carry-over period laid down by national law, is denied any period giving the opportunity to benefit from his paid annual leave": . National legislation providing for the loss or extinction of the right in such circumstances at the end of the leave year and/or the carry forward period laid down by national law would undermine the social right directly conferred by Article 7(1): . That would be the case " even where the worker has been on sick leave for the whole of the leave year and where his incapacity for work persisted until the end of his employment relationship, which was the reason why he could not exercise his right to paid annual leave": ,  and 
Payment on termination in lieu of taking paid leave
(7) After termination of the employment relationship, it is, of course, no longer possible for a worker to take paid annual leave for which that employer is liable: he has ceased to work for that employer. Provision is made in Article 7(2) for entitlement to an allowance in lieu, but the Article does not expressly lay down the way in which the allowance must be calculated:  and .
(8) "…with regard to a worker who has not been able, for reasons beyond his control, to exercise his right to paid annual leave before termination of the employment relationship, the allowance in lieu to which he is entitled must be calculated so that the worker is put in a position comparable to that he would have been in had he exercised that right during his employment relationship";  i.e. the worker's normal remuneration.
- Those two cases, which were cited in the ET and the EAT judgments, are relied on by the claimant for her basic propositions: her right to paid annual leave accrued throughout the employment relationship with NHS Leeds, including the period of her sickness absence; the paid leave that she was unable to take, because of her being ill on sick leave, could be taken by her on return to work, notwithstanding that this might be in a later leave year; and if, as was the case, her employment was terminated by NHS Leeds before she had an opportunity to take the paid annual leave due to her, she was entitled to payment in lieu at the rate at which the leave would have been remunerated, if she had taken it as paid annual leave.
- The next case cited in the ET and the EAT, Pereda v. Madrid Movilidad (Case –C-227/08)  IRLR 959, is more prominent in the submissions of NHS Leeds than the two previous cases, in particular for its references to a leave request or proposal emanating from the worker. In that case the worker became ill at the point when he was to take paid annual leave. If he wanted, he could take paid annual leave while off sick, but he was unable or unwilling to do so. After his recovery from illness the worker made a request for a new period of paid annual leave. The Court of Justice held that the worker was entitled to take paid annual leave at a period outside sickness leave, even if that fell outside the relevant leave year, if he had not had an opportunity to exercise the right to take paid annual leave in the pay year.
- The Court of Justice said that:-
"22. It follows from the foregoing and, in particular, from that stated purpose of the entitlement to paid annual leave that a worker who is on sick leave during a period of previously scheduled annual leave has the right on his request [emphasis added] and in order that he may actually use his annual leave to take that leave during a period which does not coincide with the period of sick leave. The scheduling of that new period of annual leave, corresponding to the duration of the overlap between the period of annual leave originally scheduled and the sick leave, is subject to the rules and procedures of national law which are applicable to the scheduling of workers' leave, taking into account the various interests involved, including overriding reasons relating to the interests of the undertaking.
23. If such interests preclude acceptance of the worker's request for a new period of annual leave, the employer is obliged to grant the worker a different period of annual leave proposed by him [emphasis added] which is compatible with those interests, without excluding in advance the possibility that that period may fall outside the reference period for the annual leave in question.
24. According to the case law of the Court, while the positive effect of paid annual leave for the health and safety of the worker is deployed fully if it is taken in the year prescribed for that purpose, namely the current year, the significance of that rest period in that regard remains if it is taken during the later period …
25. Consequently, although Directive 2003/88 does not preclude national legislation or practices which allow a worker on sick leave to take paid annual holiday during that sick leave (Schultz-Hoff, paragraph 31), it follows from paragraph 22 of the present judgment that, where that worker does not wish to take annual leave during a period of sick leave, annual leave must be granted to him for a different period."
- In KHS AG v. Schulte (Case C 214/10)  IRLR 156 the worker, who had suffered a heart attack, was away sick for number of years until the termination of his employment. A collective agreement that applied to his contract of employment provided that, if leave could not be taken because of illness, entitlement to that leave would lapse fifteen months after the end of the reference period. The Court stated that:
" 27. A worker who …is on sick leave throughout the reference period and beyond the carry-over period laid down by national law is denied any period giving him the opportunity to benefit from his paid annual leave."
- The Court went on to hold that the worker, who brought proceedings for payment of allowances in lieu of leave not taken in three earlier years, had lost entitlement to carry over his right to paid annual leave because it had lapsed, the 15 month carry-over period having expired. A period of that length set under national law was not precluded by Article 7. It was longer than the reference period to which it related.
- Dominguez v. Centre Informatique du Centre Ouest Atlantique (Case C-282/10)  IRLR 321 marked an important new development, which occurred after the decisions in the ET and the EAT. I agree with Mr Ford, who appeared for the claimant, that his client should be entitled to take this new fundamental legal point on appeal. It renders irrelevant the exercise of seeking a conforming interpretation of the 1998 Regulations.
- Mrs Dominguez was away sick for more than a year following an accident on the way to work. The relevant provisions of French national law in the Code du Travail required a minimum of one month of actual work in the pay reference year for paid annual leave. Her period of sick leave did not count for this purpose in her circumstances, as it was for more than one year and was not the result of a work-related accident, or an occupational disease.
- The Court of Justice held that Article 7 was directly effective against an emanation of the state. NHS Leeds accepts that it is an emanation of the state. The Directive made no distinction between sick workers and other workers, so that the right to annual leave could not be made subject to a condition that the worker had actually worked in the reference period.
- The EAT judgment in Fraser v. Southwest London St George's Mental Health Trust  IRLR 100 on holiday pay was cited mainly for its treatment of the passages in Pereda about a leave request or proposal from the worker. That case turned on the interpretation of the 1998 Regulations and their application to a nurse, who was off sick long term from November 2005. She recovered from sickness in November 2007 and was dismissed in October 2008 in the leave year 2008/09. Her claim for payment of unpaid holiday pay for the leave years 2006/07 and 2007/08 was dismissed by the ET and that decision was upheld by the EAT.
- The facts were different from the present case. There was no evidence that the claimant was unable to take leave in either leave year. It seems that she had the opportunity to take leave following her recovery in November 2007 down to her dismissal in October 2008. She gave no notice under regulation 15 in that period of intention to take annual leave. Having referred to paragraphs 22 and 25 in Pereda the EAT said this:-
" 31. … an employee who is off work as a result of sickness has a choice. He or she may choose to take annual leave during the period when they would anyway be absent sick-that might at first seem a surprising choice, but if his or her sick pay is exhausted it might in fact be attractive-or they can ask for it to be deferred until a later period. But it is for the employee to ask [emphasis added]: see the phrases 'on his request' in paragraph 22 of the judgment and; 'where the worker does not wish' in paragraph 25. If the claimant in the present case made a request to take the annual leave accruing in either 2006/2007 or 2007/2008 following her recovery the trust might have been obliged to accede to that request, and if she had not had the chance to take that holiday before her termination supervened it might be necessary to read reg. 14 as entitling her to a payment in lieu. But that is not what happened."
Summary of Article 7 rulings on paid annual leave
- Apart from the dispute about whether a leave request is required, which I will put to one side for the moment, the following would appear to be common ground between the parties:-
(1) Article 7 has direct effect against NHS Leeds, as an emanation of the State, in the ET, the EAT and the courts.
(2) A worker absent on sick leave, as the claimant was, is still a "worker" (though not at work) and may, during absence on sick leave, accrue entitlement to paid annual leave.
(3) If a worker on sick leave is unable or unwilling to take paid annual leave because of sickness, as was the case with the claimant, paid annual leave must be granted in another period, if necessary beyond the leave period concerned.
(4) A worker absent on sick leave throughout a leave year, as the claimant was, does not lose entitlement to paid annual leave at the end of that year, or the right to take paid annual leave at another time when the worker is not sick.
(5) The carry forward period for paid annual leave must be substantially longer than the reference period.
(6) Any allowance on termination of employment in lieu of paid annual leave must place the worker in the same position as if he had exercised the right to take paid annual leave during employment and so must be calculated in accordance with the normal remuneration payable for the period of paid annual leave which the worker has not been able to take because of sickness.
- The unfolding law on paid annual leave is not in a completed state, which must be a great disappointment to those hooked on the hopeless quest for completeness. The most recent addition to the EU collection-Georg Neidel v. Stadt Frankfurt am Main...Case C-337/10) 3 May 2012  IRLR 607 -re-inforces the claimant's case that Article 7 does not impose any requirement of a prior leave request. The requests and proposals are mentioned in the cases simply as features of the particular facts, or as part of a general legal discussion, as distinct from forming a necessary ingredient of the terms in which the Court of Justice has formulated its interpretative rulings. In some of the cases there is no reference to a request at all.
- Judgment in Neidel was not given until after the oral hearing in this appeal. This court had been forewarned at the hearing that it was mainly of interest on the question of additional paid leave. The main dispute on that point is whether NHS Leeds should be allowed to raise it at all as a ground of appeal.
- At the hearing the attention of this court was drawn to one particular question in Neidel referred by the Vervaltungsgericht Frankfurt am Main on 7 July 2010:-
"6. Does the scale of the entitlement to payment in lieu based on Article 7(2) of Directive 2003/88/EC extend only to the minimum leave of four weeks guaranteed by Article 7(1) of Directive 2003/88/EC, or does the entitlement to a payment in lieu also extend to the additional leave entitlements for which national law provides? Do those extended leave entitlements also include entitlements to leave of absence arising solely from a particular distribution of working time?"
- That question may be relevant to the part of the claimant's case based on entitlement to an additional period of 1.6 weeks' paid leave conferred by regulation 13A of the 1998 Regulations and/or by contract.
- The Court of Justice gave its judgment on 3 May 2012. In accordance with the directions of this court we received from the parties on 21 May 2012 their written submissions on it. The judgment turns out to be of interest on the request issue, as well as on the status of additional paid leave in relation to Article 7.
- In Neidel a public sector worker was off sick for over two years before his employment terminated on his reaching retirement age. There was no indication that he had made a request to take leave, which was refused, or that he made a request to carry forward paid annual leave. His only request, like that of this claimant, was to be paid an allowance in lieu on termination of employment. Mr Neidel was entitled to more than the four-week period guaranteed by Article 7, but the applicable Hessen Leave Regulation provided that leave not commenced within nine months after the end of the leave year should be forfeited.
- As regards his reliance on the entitlement in Article 7(2) to four weeks' leave the Court of Justice, having cited the principles in Schultz-Hoff, held that he was entitled on retirement to an allowance in lieu of paid annual leave not taken "because he was prevented from working by sickness." That statement was not qualified by any reference to a mandatory leave request, or even by detailed consideration of whether the worker was "unable" or "unwilling" to take paid annual leave while on sick leave.
- As regards the provision in national law for forfeiture of leave not taken within nine months after the end of the leave year, the Court held that, applying KHS v. Schulte, the carry over period of nine months was not permissible under the Directive, because it was shorter than the one-year reference period for taking annual leave.
- As regards the period of additional leave, the position under German law was that a payment in lieu was precluded in respect of the additional period. The Court held that Article 7 did not preclude such provisions in national law where the worker had been unable to use the additional period because he was prevented from working by sickness. In the case of the UK the 1998 Regulations allow the worker to carry forward the additional period, if a "relevant agreement" so provides and then only into the immediately following leave year.
- In those circumstances Mr Ford maintains the claimant's objection against NHS Leeds being allowed, at this late stage, to take on appeal the point on additional leave, which was not taken below. He said that evidence is required on whether there was a "relevant agreement" and, if so, what it provided. I will return to that point in later discussion of the rival submissions.
- The ET decided two issues in the claimant's favour: (a) entitlement to annual paid leave accrued during the claimant's period of sick leave; and (b) it was not necessary for the claimant to take (or to attempt to take) annual paid leave as a pre-condition to the entitlement to be paid for it, where she did not take paid leave by the date on which her employment terminated.
- Having reviewed the authorities cited on Article 7 and the 1998 Regulations, the ET concluded that the claimant succeeded by virtue of the provisions of regulation 16(1) and also on the basis of an unlawful deduction from wages under the Employment Rights Act 1996.
- No point was taken before the ET that a distinction was to be drawn between entitlement to annual leave under regulation 13 and entitlement to additional leave under regulation 13A.
- As for Article 7, the ET proceeded on the basis that it did not have direct effect. That was the state of the authorities at that time. It was therefore necessary to interpret the text of the 1998 Regulations having regard to Article 7 and the rulings of the Court of Justice on its meaning and application. The result of doing that brought success for the claimant.
- The EAT (Bean J sitting alone) dismissed the appeal by NHS Leeds on the ground that the ET was right to find that the claimant was entitled to be paid for the annual paid leave which she had no opportunity to take in the year 2009/10. The judgment is reported at  IRLR 894.
- The EAT rejected the submission of NHS Leeds that the entitlement of the claimant depended on her submitting a request for that annual leave before the leave year ended and that, in the absence of a request, she had forfeited her entitlement. Bean J summarised the position by stating that he accepted the submission for the claimant that:-
"17…the result of Stringer and Pereda is that there is no distinction between the two cases [Mr Pereda's and the claimant's]. [The claimant] was signed off sick for the whole of the pay year 2009-10. She is therefore presumed not to have been well enough to exercise what the Luxembourg court has described as her "right to enjoy a period of relaxation and leisure," so, as a matter of law, contrary to what a layman might have thought, she did not have the opportunity at any time during 2009-10 to take her annual leave. Instead, she had the right to have her leave entitlement under Regulation 13 carried over to the following year; and she had that right, in my view, without having to make a formal request for the leave to be carried over. The right to be paid for that annual leave crystallised on the termination of her employment, as it happens, only a few days after the end of the pay year.
18. The position might be different in the case of a fit employee who fails to make any request for leave during the whole of a pay year. He or she might then lose the right to take annual leave, certainly if the contract so provides, because that worker, unlike [the claimant], has in the words of the Court in Pereda "had the opportunity" to exercise the right to leave."
- As in the ET, no point was taken by the claimant that Article 7 had direct effect as against NHS Leeds, nor was any point taken by NHS Leeds that there was a distinction between entitlement to annual leave under regulation 13 and entitlement to additional leave under regulation 13A.
Submissions of NHS Leeds
- Mr Sean Jones (as he was at the date of the hearing prior to completion of the the formalities of his taking Silk) submitted on behalf of NHS Leeds that the claimant was not entitled to be paid on termination of her employment in respect of untaken leave entitlement which had accrued in the leave year 2009/10. Her entitlement had lapsed and been lost.
- He accepted that, in principle, the Article 7 right survives circumstances where the worker had not had the opportunity to take paid annual leave during the course of the leave year. However, he contended that the claimant had not been denied the opportunity to exercise her right to take paid annual leave in her period of sickness absence, or to carry it forward. She had not made any leave request. Having neither taken the opportunity to use her paid annual leave nor to carry it forward, she had lost it. Her entitlement to pay in lieu under Article 7(2) was limited to the annual leave accrued in the leave year 2010.
- Mr Sean Jones skilfully developed the case for requiring the claimant to make a leave request. He said that it was discernible in the terms of regulation 13(9) and that it was supported by the judgment of the Court of Justice in Pereda, in particular in its reference to a request or a proposal and to the "opportunity test" as it applied to the claimant's ability to carry forward the right to paid annual leave. It was not sufficient for carrying leave forward for the claimant simply to be away on sick leave: what mattered is whether she had the opportunity to exercise the right during that period. He submitted that the claimant had not complied with regulation 15 and had not been denied the opportunity. He commented that the absence of an express provision requiring a request before the leave may be carried forward is not surprising, as the 1998 Regulations precluded the carrying forward of leave entirely.
- As for Article 7, he submitted that the absence of an express provision for the making of a request to take paid leave or to carry it forward was irrelevant on this point, as the Article consists of the bare establishment of an entitlement with the conditions of implementation, such as deferability or transferability of paid leave, being reserved to Member States to make in their national laws.
- Mr Sean Jones identified three specific sets of circumstances in which a worker, who is absent on sick leave at the point when paid annual leave might otherwise be taken, must be permitted to carry leave forward into a subsequent leave year. The claimant could not bring her case within any of them.
(1) The case of the worker who has requested to take paid leave in the relevant leave year and has been refused.
(2) The case of the worker who is incapable of taking paid annual leave and has requested that it should be carried over.
(3) The case of the worker who is unwilling to take paid annual leave during a period of sickness absence and has requested that the leave be carried over.
- Consistently with the case of NHS Leeds on the interpretation of Article 7 and the 1998 Regulations (and not entirely by coincidence) the requirement for a request is the central feature of all three cases and, as already explained, is derived principally from the passages in Pereda and Fraser cited above. Mr Sean Jones commented that the request requirement is also founded on the good practical sense in allowing an employer to have a clear indication of the worker's wishes and in enabling him to plan for the workforce, which may be particularly important in the case of highly skilled workers.
- In Pereda, the main case authority relied on by NHS Leeds, the worker, who became sick and went on sick leave, made a request to take paid annual leave on a different date than was originally allocated. Mr Sean Jones emphasised the importance of the references in the Judgment of the Court to the worker's "request" and to the different period of paid leave "proposed by him." He submitted that there was no sensible distinction between a request to take leave on specified dates in a subsequent leave year and a less specific request that leave entitlement should be "rolled over" to the next leave year. They came to the same thing.
- In brief, the case for NHS Leeds is that the claimant could have taken paid leave during the course of her sickness absence; she had the opportunity to do so; she did not comply with the notice requirements imposed by regulation 15; she made no request for paid annual leave, which would have been granted had she made it; and she could have made a request that her untaken paid leave be carried forward, but she did not do so. In view of those missed opportunities, she was not entitled to payment for paid annual leave entitlement for the year 2009/10. She had lost it by neither using it at the time nor requesting its deferral.
- If wrong on regulation 13 annual paid leave, Mr Sean Jones submitted that different considerations apply to regulation 13A additional annual leave. It is a domestic creation and not therefore covered by Article 7. A different approach is required. He agreed that the distinction had not been explored in the tribunals below. Nevertheless, the claimant was not entitled to carry forward leave to which she was entitled under regulation 13A, as it is a discrete entitlement of paid time-off or payment in lieu thereof for e.g. Bank Holidays and is additional to the requirements of the Directive.
- As for the very recent judgment in Neidel Mr Jones said it did not affect his principal point that a specific request is required in order for paid annual leave to be carried forward. It was also clear that Member States were under no obligation to provide that untaken additional leave should be compensated on termination of employment, even where the reason that it was untaken was that the worker was prevented from taking it by being on sick leave.
Discussion and conclusions
General guidance by court?
- One of the points on which both counsel were in agreement was that this case presented the court with an opportunity to provide some useful general guidelines for the ETs and their users on the circumstances in which a person away from work on sick leave was entitled to take paid annual leave, or to defer taking it, and to payment in lieu of taking it. There was, according to Mr Sean Jones, apparently a pressing public need for the legal principles to be clarified.
- The surfacing of new angles on Article 7 in the ascending levels of decision in this case and the steady succession of references to the Court of Justice for rulings on its interpretation make me nervous about offering judicial guidance, which may not be of much enduring use or value in practice. Any guidance given may become outdated in quite a short time. The best that the court can do in the circumstances is to share, in its judgments, its current understanding of the law on aspects of annual paid leave that can be gained from the judgments below, from the excellent arguments on this appeal and from reading and re-reading the key passages in the authorities cited and discussed in argument.
The request point
- In the course of submissions Tomlinson LJ put it to Mr Sean Jones that he only had one legal point of substance on this appeal: that there is a legal requirement that a person on sick leave, who wishes to carry forward an entitlement to paid annual leave to another leave year must, before the end of that year, make a request to the employer to do so. If that is required, the claimant has not done it and her case should fail. If that is not required, there was no error of law in the decisions of the ET and the EAT and the appeal of NHS Leeds should fail.
- I agree. I would add that, as this case has progressed, the difficulties for NHS Leeds on the leave request point, which were always considerable, have increased. I begin with Article 7 itself and can be quite brisk about it.
- Since the ET and the EAT gave their judgments, the Court of Justice has decided that Article 7 has direct effect. Mr Sean Jones accepted that NHS Leeds is an emanation of the state against which the claimant is entitled to enforce directly the rights conferred by Article 7. It has become unnecessary to become immersed in detailed arguments about whether it is possible to reach a conforming construction of the 1998 Regulations.
- The Article itself states, without qualification, that every worker is entitled to paid annual leave of at least four weeks. It says nothing of the need for a leave request, if the worker wishes to carry it forward to another leave reference period because of absence on sick leave.
Court of Justice rulings applied
- The cases cited above, with the quotations of material passages from the judgments, establish general propositions which, when applied to the facts of this case, lead to the following outcomes.
- First, the purposes of paid annual leave. The claimant did not lose her entitlement to paid annual leave for the year 2009/10. By reason of her sickness throughout that leave year, as found by the ET, she was prevented from taking her paid annual leave in that year in order to benefit from those purposes for which entitlement to paid annual leave has been conferred. She was entitled to take paid annual leave at another time when she was not sick and, if necessary, beyond the year 2009/10 at a time when she could take advantage of the protective purposes.
- Secondly, carrying forward. The only permissible option under the Directive would have been to allow the claimant to carry forward her unused paid annual leave entitlement into the 2010/11 leave year. It would not have been permissible under Article 7(2) for NHS Leeds to pay the claimant in the 2009/10 leave year compensation in lieu of the leave lost. Such payment could only be made on the termination of the employment relationship, after which it would no longer be possible for the claimant to take paid annual leave. Termination occurred in early April 2010.
- Thirdly, the opportunity principle. In view of rulings of the Court of Justice, as combined with the ET's findings of fact about the sickness situation of the claimant in 2009/10, it is simply not open to NHS Leeds to take the point that the claimant had an "opportunity" in that year to take paid annual leave. As was said by the EAT, it was to be "presumed" from the ET's findings that the sick claimant was unable to exercise her right to take paid annual leave. As pointed out by Mr Ford there was unchallenged evidence that the claimant was unable to take leave in 2009-10 because of her sickness.
- Fourthly, none of the rulings lays down a requirement of a request to take paid annual leave or to carry it forward to another leave period. Indeed, on the facts of some of the cases, such as Schulte and Dominguez, no prior request was made to take paid annual leave during a period of sick leave or to carry it forward into the following leave year. The request to take paid annual leave referred to in Pereda  was at a time when the worker was not sick.
The 1998 Regulations
- As for regulation 15 and the service of a notice to take annual leave on specified dates in the future, Mr Ford accepts that, where a sick worker recovers and returns to work, the worker must serve a regulation 15 notice in order to take annual leave. The same applies if a worker off sick wishes to take annual leave during what would otherwise be a period of sick leave.
- Mr Ford's essential point is that regulation 15 has no application where a worker is on sick leave and is prevented by sickness from taking paid annual leave during that period of sick leave. I agree with Mr Ford that if, as has been explained, a worker has a right under Article 7 to take annual leave at another time, it would be fundamentally inconsistent with the Article 7 right to take leave at another time outside sick leave, to require the worker to serve a notice or to make a request to take paid annual leave during sick leave. If, like the claimant, the worker has not recovered or returned from sick leave and therefore had no opportunity to take that leave at another time, the service of a notice for a period which is not sick leave is not practically possible.
- I also agree with Mr Ford that, if necessary, it would be possible to interpret the 1998 Regulations so as to be compatible with Article 7, as interpreted in the rulings of the Court of Justice. I did not understand Mr Sean Jones to dispute Mr Ford's suggested interpretation of the 1998 Regulations to comply with Article 7. The issue between them is about the requirement of a prior request and the absence of such a request from the claimant.
- First, in relation to the carrying forward of unused annual leave, regulation 13 (9) would be construed to read as follows-
"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."
- Secondly, in relation to payment on termination of employment, regulation 14 would be read and interpreted to include the following insertion-:
"(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."
The conditions of employment
- In relation to the entitlement under regulation 13 no reliance was placed on the conditions of employment by either side, as, even if they provided for the making of a request, such a contractual condition would have to yield to the provisions of general law in Article 7 and the 1998 Regulations. As Tomlinson LJ observed, the employment conditions do not, in any event, appear to make the carrying forward of an entitlement to annual leave conditional on the worker making a request within the year in which the entitlement to annual leave accrued.
The Regulation 13A point
- Although both sides made submissions on the construction and operation of regulation 13A in this case, I remain unpersuaded of the wisdom of using this appeal as a vehicle for determining the issue on entitlement to additional leave and whether it should be treated in the same way as the four weeks' leave under Article 7.
- The claimant objected to NHS Leeds taking for the first time on appeal the different position under regulation 13A. That is a new point. No distinction was drawn in the ET or the EAT hearings or decisions between the law governing Article 7 annual leave and additional leave. Anything said by this court would probably be obiter, not binding and open to the significant objection that there are no findings of fact by the ET that might be relevant to it and could affect its proper determination. Until another case crops up, in which it is necessary to reach a decision on the additional paid annual leave, the ETs and their users can derive assistance from the judgment in Neidel.
- I would dismiss the appeal. NHS Leeds has not established that there was any error of law in the judgment of the ET for the claimant or that the decision of the EAT to dismiss its appeal from that judgment was wrong.
- The law in the claimant's case is certain and clear:-
(1) The claimant was entitled to paid annual leave in the leave year 2009/10.
(2) She was prevented from taking her paid annual leave because she was sick.
(3) She was entitled to carry her untaken paid annual leave forward to the next leave year in 2010/11 without making a prior request to do so.
(4) As her employment was terminated in that year, before she could take the carried forward leave, she was entitled to payment on termination for the paid annual leave she had been prevented from taking.
Lord Justice Tomlinson:
- I agree.
Mr Justice Henderson
- I also agree.
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