On 22 April 2005 an important decision was handed down by the Court of Appeal in Commissioners of Inland Revenue v Ainsworth & Ors, which changes the current position in respect of accrued holiday during long-term sickness.

The case looked at two fundamental points:

1. After exhaustion of entitlement to sick pay, is an employee who remains on the books but away from the work place still entitled to holiday pay?

2. How far back is an employee entitled to claim holiday pay?

The decision gives clear and helpful guidance to employers, which could amount to significant savings and is welcome news to employers.

Lord Justice Maurice Kay carefully scrutinised some of the main cases that have dealt with holiday pay up until now, in what can only be described as a complicated area of the Working Time Regulations 1998 (WTR).

In the Ainsworth case, Inland Revenue employees absent on long term sick leave had exhausted their sick pay entitlements; one remained employed and four were dismissed on the grounds of ill health. They all wanted to continue claiming their statutory holiday pay.

The Court decided the following points:

• Employees cannot make a claim for unlawful deductions of wages under the Employment Rights Act 1996 at all in respect of unpaid holiday pay.
• A claim for unpaid holiday pay can only be made under the WTR and must be made within three months, beginning on the date on which it is alleged that the payments should have been made.
• Employees cannot rely on a series of deductions under the WTR; therefore any claim must be made within three months of the non-payment. This means that employers will not be liable for a series of deductions for unpaid holiday stretching back over many years.
• Employees cannot carry over requests for holiday from one holiday year to another, unless by contractual provision or custom and practice permits it. Therefore if a holiday year runs January to December, requests in January 2005 to take accrued holiday from 2004 are not valid and can be refused without recourse.
• Employees do continue to accrue statutory entitlement to four weeks’ holiday pay during periods in which they are being paid contractual or statutory sick pay.

Employees do not accrue holiday pay after they have exhausted their rights to contractual or statutory sick pay, as had previously been thought to be the case.