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Annual leave for sick workers - the end of "Use it or lose it"?

It has been a long-running saga over whether workers who have been absent on long-term sickness are entitled, on termination, to payment in lieu of accrued but untaken leave from previous leave years. A major step towards resolution has occurred following the Court of Appeal decision in NHS Leeds v Larner, reported yesterday.

In Larner, the Court of Appeal addressed two key questions:

  • (i) If a worker is unable or unwilling to take annual leave as a result of sickness, must they request that it is rolled over to the following leave year?
  • (ii) On termination, is the worker entitled to payment in lieu of any untaken leave from previous leave years?


The Working Time Directive (the Directive) provides that member states must ensure that every worker is entitled to paid annual holiday of at least four weeks. This is implemented in Great Britain by regulations 13 to 16 of the Working Time Regulations 1998 (WTR), which provide workers with the right to take 5.6 weeks' paid holiday in each leave year. (4 weeks of this leave is conferred by regulation 13. The additional 1.6 weeks are conferred by regulation 13A).

Under the WTR:

  • The first four weeks' statutory holiday may only be taken in the leave year in respect of which they are due, and may not be replaced by a payment in lieu except on termination of employment (regulation 13(9)).
  • Subject to the employer's right to give "counter-notice", a worker may take statutory holiday by giving notice to the employer (regulation 15(1)).
  • Workers are entitled to be paid in respect of any period of holiday to which they are entitled under regulation 13 at a rate of a week's pay for each week's holiday (regulation 16(1)).


Mrs Larner was employed by NHS Leeds. 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). Her employment was terminated in April 2010 on grounds of incapability due to her continuing ill-health. NHS Leeds refused to pay her for the leave not taken by her in 2009/10.

The Employment Tribunal upheld Mrs Larner's claim for payment in respect of the statutory holiday entitlement that she did not use during her sickness absence. NHS Leeds' appeal to the EAT was dismissed.

NHS Leeds appealed to the Court of Appeal on the grounds that it was for Mrs Larner to make a request, either to take her paid annual leave during her period of sickness absence, or to carry it forward. NHS Leeds' argument was that the law on leave entitlement effectively allows an employer to say: "use it or lose it". It argued that since Mrs Larner did not make the requisite request, her entitlement to paid annual leave from previous holiday years was lost.


The Court of Appeal dismissed the appeal, holding that Mrs Larner was entitled to carry her untaken paid annual leave forward to 2010/11 without making a prior request to do so. In its judgment, the Court provides important guidance on the interpretation of the Directive and the WTR, and expressly confirms that this obligation extends to the private sector.


As a result of this case it is now clear that where, as a result of sickness, a worker is unwilling or unable to take the four weeks’ annual leave provided by regulation 13 WTR they must be allowed to take it another time, in a later leave year if necessary. It is not necessary for the worker to submit a request to this effect. Where such leave remains untaken on termination, the worker must be compensated for it, even if it relates to previous years' leave entitlement.

The Court of Appeal declined to reach a finding in respect of the additional 1.6 weeks’ leave conferred by reg 13A WTR. Reg 13A provides that additional leave may be carried over if there is provision to do so in a “relevant agreement” – typically, a collective agreement or contract of employment.

The Larner judgment will no doubt be fed into the “Consultation on Modern Workplaces” process launched by the Government in May 2012, which proposes that workers on sick leave should be able to carry untaken leave over to a following holiday year.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2012. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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