On 20 January the European Court of Justice gave its judgment in Joined Cases Gerhard Schultz-Hoff (C-350/06) v Deutsche Rentenversicherung Bund and Mrs C. Stringer and Others (C-520/06) v Her Majesty’s Revenue and Customs. The referring Courts, he Landesarbeitsgericht Düsseldorf (Germany) and the House of Lords (United Kingdom), asked the ECJ to provide an interpretation of Article 7 of Directive 2003/88/EC concerning certain aspects of the organisation of working time.
The Working Time Regulations 1998 (SI 1998/1833) ("the WTR") implemented the Directive into UK law.
The cases concern the entitlement of every worker to paid annual leave of at least four weeks as provided by Article 7 of the Directive. The issues at stake where whether or not a worker who is absent on sick leave has the right to take paid annual leave during the period of sick leave and whether a worker who has been absent on sick leave for all or part of the leave year concerned is entitled to an allowance in lieu on termination of employment.
The ECJ has interpreted the right to paid annual leave enshrined by the working time directive. According to the Court a worker does not lose his entitlement to paid annual leave if he has been unable to exercise it due to illness. Moreover, the ECJ has ruled that, on termination of the employment relationship, the employer must pay to a worker, who has been on sick leave for the whole or part of the leave year, an allowance in lieu of paid annual leave not taken.
It should be mentioned that in order to ensure the effective and uniform application of Community law, national courts, when faced with an issue concerning the interpretation or validity of an act of Community law, may seek a preliminary ruling from the ECJ. However, according to Article 234 EC, if it is a last instance court it is compelled to refer the matter before the ECJ. Obviously, this has an impact on Member States sovereignty as the national courts have lost part of their independence to the ECJ.
Moreover, the ECJ reply does not constitute a simple opinion. The judgments of the ECJ not only bind the national court to which it is addressed but also all national courts facing the same issue.
The ECJ has reinterpreted UK employment law. As Tim Marshall, head of employment at DLA Piper, has said “(…) UK and European employers will need to carry out a comprehensive review of their sickness, maternity and holiday policies to ensure that they meet the statutory minimum requirements.”
The ECJ’s ruling could not have come at a worse time. The UK businesses already have to comply with a list that never ends of EU directives and regulations on health and safety at work. One cannot forget that the Temporary Agency Workers Directive, recently adopted, will impose further administrative burdens and costs on companies that employ temporary workers. Moreover, if the removal of Britain's opt out of the EU's Working Time goes ahead that will cost billions to Businesses. And now, the ECJ ruling which will impose further burdens on businesses.
Under Article 7 of the above-mentioned Directive “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.” Moreover, it reads “The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.”
In 2006, the House of Lords referred to the Court for a preliminary ruling two questions on the interpretation of Article 7 of the Working Time Directive. Such questions have been raised in a case brought by former and existing employees of the HM Revenue and Customs. The House of Lords was called on to rule whether the appellants have rights against the defendant to paid annual leave or an allowance in lieu.
The case concerns a worker who was absent from work for several months on indefinite sick leave who informed the employer of her wish to take days of paid annual leave. And, workers who were before their dismissal, on long term sick leave, who had not taken their paid annual leave during the leave year, which is the only period during which paid annual leave can be taken under UK law, and claimed payment in lieu.
It should be recalled that the Court of Appeal (England and Wales) (Civil Division) held that a worker is not entitled to take annual leave during a period in which he is absent on sickness leave and is therefore not under an obligation to work. Moreover, the Court of Appeal held that if a worker has not taken annual leave because he was absent because of illness, then he is not entitled to a compensation payment under the WTR.
The ECJ was asked whether Article 7(1) must be interpreted as precluding national legislation or practices which provide that a worker on sick leave has no right to take paid annual leave during that sick leave.
According to the German Government Article 7(1) of the working time directive just stipulates that a worker has the right to a minimum period of paid annual leave of four weeks. Hence, the directive leaves to the Member States the detailed rules relating to the grant of leave as well as the interpretation of national law to a judicial decision. The UK Government has stressed that Article 7 purpose is to protect “the safety and health of those who are actually working by providing for a rest from work.” Hence, those who are on sick leave are not working consequently they have no need for ‘actual rest’ from work.
The ECJ has stressed that the right of every worker to paid annual leave is an important principle of Community social law from which Member States cannot derogate.
According to the ECJ the Working Time Directive as regards the right to paid annual leave does not make distinctions “(…) between workers who are absent from work on sick leave, whether short-term or long-term, during the leave year and those who have in fact worked in the course of that year.”
The Court has stressed that it is for the Member States to lay down, in their domestic law, conditions for the exercise and implementation of the right to paid annual leave but without making the existence of such a right subject to preconditions.
According to the ECJ, Article 7 does not, as a rule, preclude national legislation which provides that a worker on sick leave has no right to take paid annual leave during that sick leave however such prohibition must be subject to the stipulation that the worker in question has the opportunity to exercise his right to leave during another period. The Court has stressed that the entitlement to paid annual leave as conferred by Article 7 of the Working Time Directive may not be undermined by provisions of national law which exclude the existence of such right or provide for the loss of it if a worker is on sick leave for the whole leave year and/or beyond a carry-over period.
The Court ruled that “(…) Article 7(1) of Directive 2003/88 must be interpreted as precluding national legislation or practices which provide that the right to paid annual leave is extinguished at the end of the leave year and/or of a carry-over period laid down by national law even where the worker has been on sick leave for the whole or part of the leave year and where his incapacity to work has persisted until the end of his employment relationship, which was the reason why he could not exercise his right to paid annual leave.” Hence, employees from all EU Member States on log term sick leave have the right to paid holidays regardless the time that have been signed off work.
The Court was also asked to consider whether allowance in lieu of paid annual leave not taken is to be paid, on termination of the employment relationship, where the worker has been on sick leave for the whole or part of the leave year and/or of a carry-over period.
The German Government has stressed that it is up to the Member States to decide whether to provide for an allowance in lieu of leave at the end of the employment relationship. According to the UK Government if a worker has no right to annual leave, he also has no right to pay in lieu of such leave. Furthermore, the UK Government has pointed out that Article 7(2) allows, but does not require, a payment in lieu of leave at the end of an employment relationship. Consequently, such a payment cannot be considered mandatory in the case of a worker who has been absent from work on long-term sick leave.
The Court has recalled that every worker is entitled to paid annual leave of at least four weeks and that “(…) the right to paid annual leave is not extinguished at the end of the leave year and/or of a carry over period laid down by national law where the worker was on sick leave for the whole or part of the leave year and has not actually had the opportunity to exercise the right conferred on him by Directive 2003/88.”
The ECJ has stressed that it is no longer possible to take paid annual leave on termination of the employment relationship therefore Article 7 (2) provides that the worker is entitled to an allowance in lieu.
The Court has ruled that “Article 7(2) of Directive 2003/88 must be interpreted as precluding national legislation or practices which provide that, on termination of the employment relationship, no allowance in lieu of paid annual leave not taken is to be paid to a worker who has been on sick leave for the whole or part of the leave year and/or of a carry-over period, which was the reason why he could not exercise his right to paid annual leave.” The employer must therefore compensate the employee.
The Court has ruled that such allowance “(…) 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.” The Court has stressed that it is decisive for the calculation of such allowance the worker’s normal remuneration, “which is that which must be maintained during the rest period corresponding to the paid annual leave.”
According to David Frost, Director-General at the British Chambers of Commerce (BCC), “Companies will either be left with the burdensome task of reallocating resource while the accrued holiday is being taken, or they will face a large one-off expense which will undoubtedly damage their cash-flow.”
Philip Bushill-Matthews MEP, Conservative employment spokesman in the European Parliament, has said "On the face of it this may seem like a good move for employees, but at this present time there is a good chance that it will just add to Britain's already critical unemployment woes.” Moreover, he said, “(…) This ruling will not only increase employers' costs, but also their bureaucratic nightmare.”
This is another clear example that decisions on British worker’s rights are not made by the UK parliament or by UK’s courts. The times as come, as Bill Cash would said, to have “British law to British judges.” It should be recalled that Bill Cash has proposed an amendment to the Legislative and Regulatory Reform Bill putting forward a formula to override European legislation. In this way, “British judges” would be required “to follow United Kingdom law made in the Westminster Parliament and not law derived exclusively from the European convention or, indeed, European law generally.”
